Manufacturing has suffered a series of hits in the past year with big job losses in the automotive industry along with cuts at Boeing's Melbourne plant.
The bad news kept coming on Monday with Victorian car parts builder Teson Trims placed in administration.
Senator Carr pointed to an extra 24,300 manufacturing jobs added since November.
"This employment and output growth gives me great confidence in the future of manufacturing," Senator Carr told a conference in Melbourne.
"We can't allow the furphy that manufacturing is in terminal decline to gain ground."
However, Senator Carr admitted manufacturing faced a battle to prosper.
"Business as usual isn't good enough," he said.
"To make the industry sustainable in the long term we need to tackle the twin challenges of climate change and increasing competition for oil head-on.
"That will require a lot more innovation and a lot more investment."
Federal Chamber of Automotive Industries president Mark Reuss said Senator Carr's comments were very encouraging as the sector faced financial and environmental pressure to change.
"Australia needs a car industry that uses frontier technologies to increase fuel efficiency and reduce greenhouse emissions," Reuss told the conference, quoting Prime Minister Kevin Rudd.
