David Warner and Aaron Finch set the tone with a 70-run opening stand as the Aussies chased down a target of 155 with relative ease, with the former making 65 in a return to form.
That sets them up perfectly for the next game in Group 1 against England, who are also two from two, with the winner taking a giant step towards the semi-finals.
Sri Lanka, meanwhile, have been beaten for the first time in the tournament and face a crucial clash with South Africa next up.
After being put into bat, Sri Lanka lost Pathum Nissanka to an early top edge off Pat Cummins, but Charith Asalanka signalled his intent immediately with back-to-back boundaries. In the next over from Glenn Maxwell, he lifted the spinner out of the ground from the very first ball.
A 63-run partnership with Kusal Perera set the platform, but the introduction of Adam Zampa changed things. He had a big shout for LBW in his first over and in his second he had Asalanka caught sweeping by Steve Smith for 35.
Perera carried the fight with a big six off Mitchell Starc but a ball later he was heading back for the same score as Asalanka, unable to keep out a vicious yorker.
At 86 for three and with two new batters, Sri Lanka needed to rebuild but Zampa got another, Avishka Fernando, while Starc had Wanindu Hasaranga caught behind.
From the chance of making 170 or more, Sri Lanka were in trouble, not helped by Zampa finishing off his spell for a miserly two for 12.
Bhanuka Rajapaksa set about consolidating with his skipper Dasun Shanaka as the pair added 40, largely thanks to 17 off the 17th over from Marcus Stoinis.
Cummins broke that partnership as Shanaka top-edged to Matthew Wade, but Rajapaksa ended up unbeaten on 33 to take Sri Lanka to 154 for six.
Very quickly, it became clear that they did not have nearly enough. Finch and Warner tucked into the bowling, readily accepting a regular supply of bad balls to dispatch to the boundaries.
Finch powered two fours in the very first over and he and Warner combined to take Lahiru Kumara for 20 runs off his first over.
Warner should have been on his way for 18, gloving one through to Perera off Dushmantha Chameera, but the wicket-keeper put it down as his bowler started to celebrate and umpire Richard Illingworth was twitching his finger.
That was costly and by the end of the powerplay, Australia were 63 for none, the best performance of the tournament so far.
Finch fell for 37 in Hasaranga’s first over, chopping on and in his next, Maxwell picked out Fernando on the boundary after dragging the ball over midwicket from outside off.
Warner kept going though, moving to a half-century in the 12th over as he and Smith saw off the threat of Hasaranga and then went after the fast bowlers.
As Australia looked to finish it off quickly, Warner found Rajapaksa on the boundary for 65 off just 42 deliveries, but Smith and Stoinis got them home with three overs to spare, to boost the net run-rate as well.
Scores in brief
Australia beat Sri Lanka at Dubai International Cricket Stadium, Dubai by seven wickets
Sri Lanka 154/6 in 20 overs (Charith Asalanka 35, Kusal Perera 35; Adam Zampa 2/12, Mitchell Starc 2/27)
Australia 155/3 in 17 overs (David Warner 65, Aaron Finch 37; Wanindu Hasaranga 2/22, Dasun Shanaka 1/6)
Player of the Match: Adam Zampa (Australia)