Yep, GJs on Lygon St East Brunswick is a great place for fabrics! They have lots of cheaper remnants on tables which are fun to browse. They specialise in glitzy glam costume/nightclubby/pvc/furry/brocade fabrics but there's plenty of the more subdued variety too. They're reasonably cheap, and friendly. Oh and they have an amazing selection of quilting fabrics, includings some very funky japanese-y prints. It's about 10-15 shops down from where Lygon St does a dogleg to the left at Albert St, it's on the west side and not that far from Wholefoods. Take the Lygon St tram.
I like Rathdowne Remnants, despite an unpleasant confrontation a few years ago due to my pro-refugee tshirt. They have heaps of cheap remnants too in bins, sorted by fabric type and colour. If you convince them you're selling your stuff, they should give you 10% discount cards. Also, they occasionally have really good sales where everything is 25% off. And they have good 'notions' as well. Great place to find every texture and shade of the rainbow for knitted fabrics. Take the Lygon St tram and get off and turn east a little into Brunswick Rd.
Coburg Fabrics is up in the strip of shops just south of Bell St, it's on the opposite side to the Coburg Mall (so, it's on the east side), and a few shops down from it, look for the 50% off in large fluro letters, and 'up to' in very small letters. They've been closing down for ages and ages, they want to open up a food shop instead. Wide range of stuff, especially darker-coloured fabrics. If you get the older guy who owns the place, you will get some really good discounts especially if you buy a lot, if you're prepared to listen to him talk about his life and perhaps be a bit overfriendly (he once gave me some money to go buy a 'sweet'). The younger women are less prepared to bargain. Close to Coburg Station on the Upfield line, or you can take the Sydney Rd tram. I've never been particularly inspired by any other fabric shops on Sydney Rd, apart from Spotlight of the few security cameras. Lots of suiting material and florals which are not my thing. Anne's Fabrics in the 'middle Sydney road' bit is kind of okay, but I might be outdated as I'm not sure if it's there any more. We can thank the high proportion of recent immigrants for the larger number of fabric shops in the area, and I think there are a lot of clothing businesses too. Oh and near Coburg Fabrics there's an Indian fabric/sari shop but not as cool as you might think.
Dancing Queen is bloody awesome if a little expensive. Small and select. Friendly proprietor. Mostly fabric for dancing! There's some really beautiful imported stuff, often here one day, gone the next. Some cheap remnants in a box. She doesn't keep a consistent line of anything. Some local designers sell hand-screenprinted fabric here, very funky designs if top dollar. The shop is definitely eye candy for crafty people. You can get reflective pvc fabric if you're lucky or order in bulk, I think this is the only place that retails it in Melbourne.
I've talked to people who've gone to wholesalers around Richmond and convinced them to sell them 10m of a fabric, but I haven't tried it yet. Generally wholesalers don't like you unless you buy a lot, they'll ask you for your fabric label, ABN, etc. But some will sell you notions, you know, lace, boning, buttons, that sort of thing, in quite small quantities, so it's worth looking them up in the Yellow Pages.
Oh and kind of opposite Coburg Fabrics is the Metro Sewing Centre, which apart from selling really expensive second-hand sewing machines, also has an amazing variety of sewing machine accessories. Good place to go if you need a particular foot for your machine, although prepare to pay. I haven't looked at online ordering much, but ebay and online Australian sewing supplies and fabric businesses are around.