The 29-year-old Scot feels he's in the right shape to finally hoist the trophy at Melbourne Park.
'Sir Andy', knighted in Britain's New Year Honours list after a magnificent 2016 saw a second Wimbledon crown, a successful Olympic title defence and the year-end top ranking, has lost five Melbourne finals, four of those to Djokovic.
But after years of playing second fiddle to the 12-time major-winning Serb, Murray is coming off a break-out year when he knocked Djokovic off the top spot to become world number one for the first time.
The 29-year-old Scot may have relinquished his unbeaten run of 28 competitive matches to Djokovic in this month's lead-in Qatar Open, but feels he's in the right shape to finally hoist the trophy at Melbourne Park.
"I think physically it was a good test to start the year, and I did good in Qatar," Murray said. "My body feels all right just now, so that's positive. Still think there are things I can do better."
As the top two seeds, Murray and Djokovic will be on opposite sides of the men's draw and seeded to meet each other in the January 29 final.
Murray, who lost to Djokovic in the 2011, 2013, 2015 and 2016 Australian Open deciders, trails the Serb 25-11 in their encounters, but the Scot dominated the second half of last year.
In contrast, Djokovic's season imploded after a third-round loss at Wimbledon, followed by a first-round exit to Juan Martin del Potro at the Rio Olympics and defeat to Stan Wawrinka in the US Open final.
But with six titles, Djokovic will make history as the player with the most Australian Open victories if he manages to win the tournament again.
A seventh triumph would pull him one clear of Australia's Roy Emerson, who also won six titles but in the amateur era of the 1960s.
Djokovic, who had a messy split from coach Boris Becker in December, said he is looking to use the Doha victory as a springboard into the new season.
"Playing five matches and then three hours against the number one of the world, biggest rival, and winning in a thrilling marathon match is something that definitely can serve as a positive incentive for what's coming up in Australia," he said.
"I hope we are going to play against each other. We make each other work hard and improve and continuously work on our games and ourselves. We strive to get better, both of us."
Outside the top two, the main hopes rest with reigning US Open champion Stan Wawrinka, who won in Melbourne in 2014, big-serving Canadian world number three Milos Raonic and Japanese hope Kei Nishikori.
Switzerland's Wawrinka has the big serve and an exquisite one-handed backhand to test the best.
"Whenever I am in a final I have full confidence in my game, in general because I have won many matches in the same tournament, so I am playing my best tennis," Wawrinka said.
"I am ready. So far I have played three amazing (Grand Slam) finals. I'm really proud and happy to have done that."
Raonic, who downed Wawrinka before going out to Murray in last year's Australian Open semi-finals, lost again to the Scot in last year's Wimbledon final.
"What I'm looking for the most is what I can do about those top two guys, to make the step from number three to number two and hopefully number one," Raonic said.
Grand Slam warriors Roger Federer and Rafael Nadal should also be in the mix, but they lack match time and their rankings have slipped.
Seventeen-time Grand Slam great Federer, who at 17 is out of the top 10 for the first time since late 2002, is easing his way back after six months out with a knee injury, while 14-time Grand Slam winner Nadal is coming off another injury-hit season.