Move follows an unsuccessful sale process which saw the final interested bidder withdraw its offer.
Insolvency and restructuring firm McGrathNicol was appointed voluntary administrator of Toys R Us Australia (TRUA) and Babies R Us on Monday after an unsuccessful sale process managed by Lazard.
In a statement, McGrathNicol said the final bidder had withdrawn its offer, prompting directors to pull the plug.
McGrathNicol intends to keep both businesses operating while it urgently explores options for a sale of the businesses as a going concern or a recapitalisation.
Toys R Us has 44 stores in Australia under the Toys R Us and Babies R Us brands and employs about 2701 people, 700 on a permanent basis.
The Australian business had been trading normally since its US parent filed for bankruptcy protection in September and it was initially thought it would survive if the parent company managed to restructure more than $5b ($6.3b) in debt.
However, the Australian business has racked up losses of more than $100m over the last seven years and could not continue as a stand alone entity.
Toys R Us Australia lost $7.6m in 2017 on sales of $276.4m and had net liabilities of $6m, according to its latest accounts.
Toys R Us hired Jason Preston and Jason Ireland from McGrathNicol to review the Australian operations late last year.
McGrathNicol said on Monday that refunds for sold items will no longer be offered, but gift cards and vouchers will be honoured provided customers spend an additional equivalent amount in a TRUA store.
Online orders will be delivered where goods have been paid for in full and the stock is available.
The administrators will continue to pay employees and expect that employee entitlements will be met either through a sale of the business, recoveries from the sale of stock, or through the Commonwealth Government’s Fair Entitlements Guarantee (FEG) Scheme.