Like its international peers, Fairfax -- the owner of major mastheads The Sydney Morning Herald, The Age and The Australian Financial Review -- has seen profits hit by dwindling advertising revenue and circulation figures.
But its property advertising Domain Group has benefited from digital classifieds growth and a booming domestic housing sector.
The float of Domain had been flagged for some months, with Fairfax hopeful it would get a better market valuation if listed separately on the stock market.
"The separation is in the best interests of Fairfax Media shareholders and will, over time, deliver greater value to... shareholders than the current structure," Chairman Nick Fallon said in a message to shareholders.
"The business... has a strong track record of growth, with total revenue increasing at a 28 percent compound annual growth rate over the past three years."
Fairfax will own 60 percent of Domain shares after the separation, while the Australian-listed firm's shareholders will be given one Domain share for every 10 Fairfax shares.
Shareholders will vote on November 2, with Domain to start trading as a separate entity later that month if they approve the split.
The spin-off is similar to Rupert Murdoch's split of his empire into separate firms focused on media-entertainment and publishing -- 21st Century Fox and News Corporation (Frankfurt: A1W048 - news) -- several years ago, analyst Peter Cox said.
"If (Fairfax) can push their 60 percent value up above what it would have been otherwise, the combined value of the two companies will be better than what it is today," Cox told AFP.
"That's what News Corp did and that's what a number of others have tried to do. But I don't think it's a salvation for Fairfax."
Cox said it was not yet clear if Fairfax would be able to strengthen its core news business, while a key risk was if investors lost interest in digitally driven stocks such as Domain.
The announcement came a day after the media company said 2018 financial year revenues were 4-5 percent below the previous year's.
It also came after US private equity giant TPG Capital and US investment firm Hellman & Friedman pulled out of competing efforts to buy the entire firm.