Kennaugh and Sky team-mate Chris Froome lit up the Australian stage race, attacking in the finale to claim a one-two.
Kennaugh and Froome worked as a duo to distance themselves from the rest of the peloton over the hilly circuit.
Tour de France champion Froome said he was happy to assist Kennaugh throughout the stage.
The peloton on stage one of the five-day 2016 Jayco Herald Sun Tour.
Former British national champion Kristian House was part of the day's escape group.
Welshman Luke Rowe worked hard at the front of the peloton to keep the pace high. He is using the race to get into condition for the spring classics.
The effort shows on Ian Boswell's face during the testing opening road stage of the race.
Alistair Slater of British team JLT-Condor was part of the day's escape group alongside Kristian House.
Travis Meyer heads the peloton on stage one of the 2016 Jayco Herald Sun Tour.
Italian Salvatore Puccio was a key part of Team Sky's tactic to drive the pace of the action.
Nick Kastsonis was one of a six-man escape group caught in the last 30km.
Chris Froome attacks on the final climb after the day's escape group was caught.
Chris Froome points to Peter Kennaugh as the British duo's efforts to break free from the peloton paid off.
Peter Kennaugh swapped his British champion's jersey for the yellow and blue Herald Sun Tour leader's top.
One Pro Cycling's Dion Smith celebrates after taking the bunch sprint for third place behind Kennaugh and Froome. Photo: Graham Watson
Peter Kennaugh wins at the Herald Sun Tour (Watson)