Professor Philip Hogg, the director of the university's NSW Cancer Research Centre, says that his test uses a dye to determine whether cancer cells are being destroyed or not.
He says he has developed a family of molecules that attach themselves to dying or dead cancer cells, which enables doctors to determine whether a particular course of treatment is working within 24 hours of the first dose.
Currently, patients receiving chemotherapy or radiotherapy have to undergo a full cycle of treatment, which can take up to six months, before it can determined whether the tumour has been reduced or has grown.
Professor Hogg says the dye may prevent patients from the side effects in case their combination of cytotoxic drugs proves ineffective. He also says that new test can enable doctors to personalise treatment.
"Chemotherapy has three outcomes - the tumour is reduced, stays the same, or it grows and spreads - but we have no way of knowing which way things are going until the end of a cycle of treatment, or several cycles," the Sydney Morning Herald quoted him as saying.
"If, at the end of a cycle, we find out the tumour has not been reduced, the oncologist must prescribe a new combination of drugs, or a different treatment, and the patient starts again. This means patients go through a lot of trauma and many don't have the time to waste on ineffective therapies," he added.
According to Professor Hogg, patients would be injected with the dye within 24 to 48 hours after the first dose of chemotherapy or radiotherapy, after which a CT scan would be used to see dead or dying cancer cells.
He says that an oncologist can immediately change the treatment in case none of the cancer cells dies.
"This discovery stems from more than 10 years of research focused on the design of molecular probes to study cellular processes," he said. "We were working on another project when we found that these molecules attached to dead, cultured cells, so we decided to follow our noses and see where it took us. It is very exciting to be able to tailor treatment and to prevent people from the trauma of going through a chemotherapy cycle for months only to find out it didn't work," he added.
He said that the dye was expected to work on the cancers of lung, breast, colon and prostate. However, it would not be suitable for leukaemia.
The US pharmaceutical giant Covidien has bought the development rights in an undisclosed worldwide deal worth tens of millions of dollars in royalties to the university.
The firm hopes to have the dye on the market within five years. Clinical trials with it will begin within two years.