In October 2010, her government announced that it would open two detention centres for 2000 immigrants, due to the pressures in allowing women and children to be released into the community. One was to be opened in Inverbrackie, South Australia, and one in Northam, Western Australia.
She said it would be a short-term solution to the problem and that temporary detention centres would be closed.
On 15 December 2010, a ship containing 89 asylum seekers crashed on the shore of Christmas Island, killing up to fifty people. Refugee and migrant advocates condemned the government's hardline policy as responsible for the tragedy, and ALP Party President Anna Bligh called for a complete review of ALP asylum seeker policy. Gillard returned early from holidays in response to the crash, and to review asylum seeker policy. Some months later Gillard would announce "The Malaysia Solution" in response.
In April 2011, the Federal Government confirmed that a detention centre for single men would be built at the old army barracks at Pontville, 45 minutes north of Hobart,Tasmania. This immigration detention centre would house up to 400 refugees. Also in April 2011, immigration detainees at the Villawood detention centre rioted in protest of their treatment, setting fire to several buildings.
In May 2011, Gillard announced that Australia and Malaysia were finalising an arrangement to exchange asylum seekers. Gillard and Immigration Minister Chris Bowen said they were close to signing a bilateral agreement which would result in 800 asylum seekers who arrive in Australia by boat being taken to Malaysia instead. Australia would take 4,000 people from Malaysia who have previously been assessed as being refugees. However, on 31 August, the High Court ruled that the agreement to transfer refugees from Australia to Malaysia was invalid, and ordered that it not proceed. Australia would still accept 4,000 people who have been assessed as refugees in Malaysia.