The 53-year-old actor told the anecdote during a ceremony in which many stars spoke out about the issue of sexual harassment in the entertainment industry.
In the comments, that were ultimately cut from the broadcast, were reported by The Guardian.
Crowe reportedly acknowledged the need for 'sensitivity' in the entertainment industry, but then linked that need to a totally inappropriate story about 'sodomising' co-star Jacqueline McKenzie during a scene on the set of their 1992 film Romper Stomper.
Crowe reportedly said, 'I didn’t actually intend to do that — I was trying to keep my bits away from her bits, and she’s been given one of those pieces of elastic that the girls get when you do those scenes, which protects them from all things, and my bits and pieces were in a little canvas sack with a drawstring.'
'And it was actually my desire to keep the bits apart. It wasn’t until the opening night of the film that it was pointed out by none other than Jackie McKenzie’s beautiful late mother that we were in fact, in her mind, engaged in sodomy. Anyway that was just a story about sensitivity!' he continued.
McKenzie - who also happened to be present at the AACTAs - just last week revealed she had endured 'sexual harassment, bullying, groping, lascivious comments and unwanted advances' during her long career as an actress.
McKenzie claims she reported the conduct when she was in her 20s, only to be ignored twice.
She told The Australian, 'The people involved were protected, the behaviour was ignored or swept under the rug.
'One response to a legal letter I did send — demanding an assurance I would be safe on set — was met by the producer saying: ‘I can’t give this letter to him (an actor). He’ll go crazy.’'
Crowe's comments are made in the wake of the Harvey Weinstein scandal, where several high-profile men have been accused of sexual harassment, sexual misconduct and sexual abuse. These include high profile stars like Kevin Spacey, John Travolta, and Don Burke - just to name a few.