The reconciliation advocate said she felt obligated to share her experience to bring awareness to a problem that has not faded from the Australian culture.

"Reconciliation cannot occur until we face and challenge this ugly side of our behaviour," Ms Clarke said.

"The insidious and spiteful nature of racism causes untold damage that can last a lifetime.

"We are better than this."

The indigenous elder said the incident took place as she was having lunch on her own.

She said comments such as "Australia doesn't belong to the Aborigines it belongs to us" and "It (Australia) didn't even have a name until the English named it" were directed at her by fellow diners.

Ms Clarke said after a number of comments, she couldn't sit by idle.

"I chose to respond for two reasons: we need to address racism as a society, and our young are impressionable and the racism cycle needs to end," the 52-year-old said.

"I approached them and explained I am a Gunditjmara woman and this is known as Gunditjmara country. Like Europe has Italy, Sweden or Germany, there are also many countries in Australia.

"I also said the word Aboriginal is Latin and a scientific name meaning 'originally from'.

"They scoffed and smirked and as I was walking away the mother said to her sons to just ignore 'those people'."

Ms Clarke said one of them then started calling her an offensive name and laughing with the group.

"I was clearly in earshot and they knew it," Ms Clarke said. "I felt no anger, I just had fear and humiliation.

"You could see they were enjoying this, you could see the boys smirking."

Ms Clarke said she was deeply troubled by the incident and couldn't sleep as her "mind was going a million miles an hour".

Ms Clarke has worked tirelessly throughout her life to stand up to racism and said these attacks are not just verbal, they're emotional and psychological.

"It digs much deeper than your ego," she said.

"Particularly if you have a history with racism.

"I feel like the wounds I've packed up deep inside are now open."

Ms Clarke has reported the incident to the management of the restaurant, who have good relations with the Gunditjmara community, and are taking internal action.

"I've always felt welcomed there and the staff are fun and friendly," she said.

Ms Clarke said she was following up with Warrnambool police to report the incident under the Victorian Racial and Religious Tolerance Act 2001.

Ms Clarke said many other indigenous people don't feel they can do anything about it, or know they have rights.

"I'm also doing this for them," she said.

"If I don't do anything about this, then it will just keep happening and nothing will change."

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