We assessed the accuracy of earthquake source parameters inverted from simulated Interferometric Synthetic Aperture Radar (InSAR) data. Using focal mechanisms of Australian earthquakes (1959 to the present), we simulated synthetic two-pass InSAR observations with realistic spatial noise derived from the characteristics of actual ERS-2 and ENVISAT InSAR data observed over Australia. The precision of two-pass satellite SAR interferometry with ERS-2 and ENVISAT SAR data in the Australian region can approach +/- 2 mm (1 sigma) and is routinely at the +/- 4 mm level. The use of spatially correlated observational weights has minimal impact on the accuracy of earthquake source parameters inverted from InSAR data. In most cases single geometry (i.e., ascending or descending) InSAR observations can be used to accurately determine earthquake source parameters, although typically a combined geometry reduces the source parameter uncertainties by a factor of 1.5. In general, earthquakes of magnitude < 4.8 are unlikely to be observable by InSAR although very shallow events would be detectable. InSAR is insensitive to magnitude 6.2 earthquakes deeper than 10 km, and magnitude 5.5 deeper than 6 km. For earthquake magnitudes >= 5.8 (average depth 6.5 km) we could estimate the epicenter of the rupture with an average accuracy of 0.25 km, depth to within 0.5 km and the fault orientation to better than 2 degrees. Our findings, based on simulated Australian earthquakes, are representative of typical intraplate earthquakes and would be valid in many other regions. To date no actual earthquakes have been observed by InSAR in Australia.