Conventional reservoir models often overlook micro-scale heterogeneity because standard well logs and core plug data lack the resolution to capture fine-scale features. This omission reduces the precision of reservoir characterization, particularly in thin sandstone layers where reservoir quality is critical for CO₂ sequestration. To address this limitation, high-resolution micro-CT imaging and digital core analysis (DCA) were combined with upscaling algorithms to bridge the gap between pore-scale properties and field-scale reservoir simulations. This study applied the upscaled data from digital core analysis to improve reservoir characterisation and modelling for CO₂ injection projects in the Otway formation. Micro-CT imaging provided detailed three-dimensional pore structures, and pore network modelling was used to generate relative permeability and capillary pressure functions. Then, these properties were upscaled to reservoir scale and incorporated into simulation models. History matching was performed using multiple field datasets, including seismic CO₂ plume shapes, CO₂ saturations from neutron logs, and pressure buildup from a single-phase water injection test. The results demonstrated three key advantages of DCA over conventional laboratory core experiments. First, DCA significantly reduced uncertainty in the measurement of rock properties, leading to more accurate predictions of CO₂ plume behaviour. Second, DCA enabled the testing of individual rock types within facies associations, and their effects were captured in upscaled properties for large-scale simulations. Third, plume simulations based on upscaled DCA data reproduced the observed seismic plume, with a more accurate vertical profile and reduced lateral extent compared with earlier simulations using traditional SCAL data. Overall, this work highlights the value of integrating micro-CT imaging, DCA, and upscaling into reservoir modelling. The approach provides a more reliable representation of reservoir heterogeneity and improves the accuracy of CO₂ storage forecasts, offering a practical pathway for enhancing the safety and efficiency of geological sequestration projects.