In 1982, dissatisfied with the rates of pay and the small audience offered by literary magazines, Bruce Pascoe attempted to find support for a new magazine that would feature short fiction. Unable to secure support, Pascoe used the money from his share of the sale of a house to finance a print run of 20,000 copies of Australian Short Stories for Christmas 1982. Launched by Bob Hawke, the first issue sold 12,000 copies, a significant amount for a literary magazine. From that time, Australian Short Stories sold, on average, 6,000 copies per issue. The magazine was described as presenting 'the best of the established Australian writers and illustrators together with the new literary and art talent in the country' (Editorial no. 1, 1982)
The first issue included contributions from Frank Hardy, Barry Dickins, Manning Clark and Morris Lurie. Contributors in the 1980s included Kylie Tennant, Michael Wilding, Helen Garner, Tim Winton, Alan Marshall, Marion Halligan, Beverley Farmer and Kate Jennings. Other contributors included Elizabeth Jolley, John Morrison, Ruby Langford Ginibi, Gillian Mears, Mudrooroo and Carmel Bird.
Pascoe aimed to make Australian Short Stories as accessible as possible by distributing the magazine widely. With the assistance of a distributor and Pascoe's perseverance in his own region, Australian Short Stories was a success in newsagencies. It was also sold in many bookstores.
With financial assistance from the Literature Board, Pascoe was able to maintain an important place for fiction writers to publish their work. But by 1998, he and his co-editor, Lyn Harwood, stepped back from the editorial responsibility of handling up to 150 manuscripts per week to concentrate on their own work. Howard Firkin took over as editor for the sixty-second issue in 1998, but only three more issues were produced. Australian Short Stories ceased production in 2000.