The bare circular patches were first recorded by scientists in Africa in the 1970s, sparking a global debate about the phenomenon.
Ethnoecologist Fiona Walsh says scientists concluded they came about from plants competing for water and nutrients.
But researchers working with traditional owners have come up with a different hypothesis for the circles that are between two and 12 metres in diameter.
"Aboriginal people told us that these regular circular patterns of bare pavements are occupied by spinifex termites," Dr Walsh said on Tuesday.
"We saw similarities between the patterns in Aboriginal art and aerial views of the pavements and found paintings that have deep and complex stories about the activities of termites and termite ancestors."
Martu elder Gladys Bidu said the patches are called linyji and termites live in the ground under them.
"I learnt this from my old people and have seen it myself many times," she said.
"We gathered and ate the Warturnuma (flying termites) that flew from linyji."
Ms Bidu said her ancestors also used the rock hard circles to break open and crush seeds for use in food, such as damper.
Researchers surveyed and excavated trenches on land containing multiple fairy circles in Nyiyaparli country, east of Newman in Western Australia's Pilbara region.
They also looked at patches at Newhaven, an Australian Wildlife Conservancy property in Warlpiri country in the Northern Territory.
"The pavement surface is concrete hard," Dr Walsh said.
"After we dug and then dusted to clean the trenches, 100 per cent of them had termite chambers seen horizontally and vertically in the matrix."
Dr Walsh said termites and their structures were much more common under the circles than in the nearby spinifex grasslands.
"Which provided alternative scientific evidence to the dominant international theory explaining the fairy circle phenomenon in Australia," she said.
The cross-cultural research has also led to other unexpected findings.
Martu interpreter Desmond Taylor shared his cultural knowledge about Mulyamiji or great desert skinks, which are a threatened species.
"After good rains in linyji country, Mulyamiji would be born in water lying on the linyji," he said.
"My mother, my two fathers, my uncle told me this long ago."
This breeding behaviour has not previously been reported for the species and Dr Walsh said it was an outstanding example of how Aboriginal people's knowledge had not only informed but led science questions.
"The water-holding characteristics of termite pavements were unknown to desert scientists until we recognised clues in the stories of our Aboriginal colleagues and Aboriginal art," she said.
"Aboriginal people refined their encyclopedia and authoritative knowledge when living continuously on this continent for at least 65,000 years and their knowledge is critical to improving ecosystem management and in understanding and caring for Australia's desert."
The research was published in Nature Ecology and Evolution by a cross-cultural team of researchers from the Western Desert region, The University of WA, the Australian Wildlife Conservancy and the Arthur Rylah Institute for Environmental Research.
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