The flight, MU736, took off from Sydney bound for Shanghai about 8.30pm on Sunday (local time), before experiencing problems shortly into the journey.
The returned aircraft is now under investigation at Sydney airport.
No injuries have been reported.
In this image made from video, a hole is seen in the engine of China Eastern airlines Flight 736 after it landed in Sydney, Australia, Monday, June 12, 2017.
Passengers told Australian media they heard a massive noise and smelled something burning.
'I was scared. Yes, I was really scared. "Our group was terrified", the passenger told Seven.
The plane landed in Sydney and passengers, who were put up in hotels, were expected to depart on another flight today.
Passengers said they heard massive noise on the left wing of the plane before it was turned back and grounded.
Damage to the left wing of the AirBus A330 saw an entire strip of the external cover ripped off, leaving the engine partially uncontained. I was really scared.
"We are aware of the incident and will be working closely with our customer and relevant partners to understand the cause of the issue", an unidentified Rolls-Royce spokesperson told Reuters.
Aviation expert Professor Jason Middleton, from the University of New South Wales Aviation School, has described the incident as "a very rare event". "It could have begun from loose screws", he told Australian Broadcasting Corp.
In the audio, which has been confirmed by a spokeswoman from China Eastern Airlines, the pilot appears to misspeak when trying to alert authorities to the engine fault.
Ground-handling company Cathay Pacific had inspected the plane before take off, Zhang said.
Listen as pilots of China Eastern flight #MU736 communicate with Sydney tower regarding engine #1 issue before returning to Sydney.