The teenagers were arrested by the state’s Joint Counter-Terrorism Team at Bankstown in Sydney on Wednesday, in a lane behind a Muslim prayer hall, the ABC reported.
Police found two large bayonet-style knives and religious notes that allegedly pledged allegiance to IS from the boys.
According to officials, the pair did not appear in Parramatta Children’s Court on Thursday morning and did not apply for bail.
In opposing bail, police said the pair posed an unacceptable risk to the community.
They are due to return to court in December.
Police documents tendered in court heard the teen talking to his mother on a lawfully intercepted conversation in October 2015.
During the conversation, he said “When they come, I am going to something to them that they have never seen before. I am going to do something bigger.”
At a news conference, police said the boys were charged with terror-related offences.
The arrests comes one month after a 22-year-old man was charged with committing a terrorist act and attempted murder in Sydney.