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Blanchett, 43, received the doctor of letters in a ceremony at the university's Great Hall on Saturday, according to media reports.
"This means a great deal (to) me as someone who didn't complete my arts degree at Melbourne University - I left to go to NIDA (the National Institute of Dramatic Art)," Blanchett told the Sun-Herald newspaper.
The honour was for Blanchett's "work as an actress and as artistic director of the Sydney Theatre Company, as well as her advocacy of the importance of the arts in education," according to media reports of the official citation.
Blanchett and her playwright husband Andrew Upton are credited with turning around the Sydney Theatre Company's finances during their tenure, which began in 2008 and expires at the end of 2013.
She and Upton announced in January that they would step down as co-artistic directors and CEOs at the end of next year due to Blanchett's overseas film commitments and the pressure of three young children.
Renowned local singer Geoffrey Gurrumul Yunupingu, who is blind and taught himself to play the guitar, was also honoured with a degree for his contribution to music and culture.
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