Objective: To evaluate trends in the incidence and serotype profile of invasive pneumococcal disease (IPD) in Australian children under 2 years of age after the introduction of the 7‐valent pneumococcal conjugate vaccine (7vPCV). Design and setting: Analysis of incidence rates calculated using IPD surveillance data (including age, Indigenous status and serotype of the pneumococcal isolate) from 2002 to 2007 obtained from the National Notifiable Diseases Surveillance System and population estimates obtained from the Australian Bureau of Statistics. Main outcome measures: Trends in IPD incidence among Indigenous and non‐Indigenous children between 2002 and 2007; change in the serotype profile of IPD in non‐Indigenous children after the introduction of universal 7vPCV vaccination in 2005. Results: Overall incidence of IPD decreased by 74% in all children < 2 years of age between 2002 and 2007 (P < 0.001). While the incidence of IPD caused by 7vPCV serotypes decreased significantly among both Indigenous and non‐Indigenous children, the incidence of non‐7vPCV serotype IPD increased significantly in non‐Indigenous children (from 9.7 to 15.7 per 100 000, P < 0.001). Compared with a pre‐vaccination period (2002–2004), the 2007 incidence of serotype 19A IPD in non‐Indigenous children increased significantly (from 2.7 to 8.6 per 100 000, P < 0.001). In 2007, 19A was the predominant serotype causing IPD (37.7%) in all children aged < 2 years. Conclusions: The overall incidence of IPD decreased from 2002 to 2007, primarily driven by a reduction in IPD caused by 7vPCV serotypes. However, this was partially offset by a significant increase in the incidence of IPD caused by non‐7vPCV serotypes, particularly 19A, in non‐Indigenous children.