The 21-year-old, tipped as a medal contender in the Aquatics Centre at London 2012, bowed out in the heats of the 200m butterfly as British Swimming failed to meet their pre-Games medal target.
Gandy, a two-time British Olympian who was born in Bromley but emigrated to Australia aged 16 with her family, currently trains in Melbourne.
And after consulting with her coach, Rohan Taylor, the two-time British Olympian feels life down under will help her balance training with a desire to finish her higher education.
"It started with the Olympics. I was really disappointed with my performance," reflected Gandy. "The last five years have been really difficult, especially the travelling.
"A lot of the time I felt like I was in limbo because I didn't feel Australian, but I didn't really feel British either because I wasn't there all the time.
"I sat down with Rohan and he suggested that I look at establishing a more balanced lifestyle, go back to University and, as part of that discussion, he raised the idea of competing for Australia.
"I had thought about it before but not seriously, but when I looked into it, it became something that I was really excited about."
The news will come as a bitter blow to British Swimming which itself is looking for a new head coach and performance director following the departures of Dennis Pursely and Michael Scott.
Gandy will be unable to compete for 12 months as she waits to become eligible to compete for another nation, ruling her out of next year's World Championships in Barcelona.
But she could return in front of home fans at the 2014 Commonwealth Games, this time in the green and gold of Australia.
She added: "It's not that I don't like Britain any more, but Australia has always been so supportive of me as a foreign athlete. They have never treated me as an outsider."