In a stroll on Bondi, the couple, who are expecting their first child in the northern spring, shook hands and posed for photographs with some of the thousands who turned out for the event, snapping pictures and video with their smartphones.
Prince Harry praised war veterans as he opened the Invictus Games Sydney on Saturday evening, but the father-to-be couldn't help make a reference to his "newest addition" as he delivered an emotional speech.
During a meeting with the governor-general, Peter Cosgrove, and Lady Cosgrove in Sydney on Monday, Harry and Meghan were given their first baby gifts: a little pair of baby sheepskin booties and a stuffed animal kangaroo with a joey.More news: $450 Billion in Investments at Stake in Saudi Crisis, Trump Says
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Kensington Palace said the couple had made a decision to cut back Meghan's schedule "slightly" ahead of the couple's visit to Fiji, Tonga and New Zealand.
Harry, who served in the British Army for a decade, founded the Invictus Games in 2014. "You are the optimistic generation".
It was at last year's event in Toronto that they made their official debut as a couple, arriving hand-in-hand and taking in the competitions.
The two have already been talking about baby names. Meghan and Harry also couldn't take their eyes off each other during their visit to the beach.
The source continued: "She sat through breakfast with a smile on her face, but Harry looked a bit uncomfortable".
The couple are in the middle of a 16-day tour of Australia and New Zealand.