The wallaby was rummaging through a bin for food outside a restaurant in Couran Cove Island Resort on South Stradbroke Island off the Gold Coast last week.
Two groups of diners watched as the guard allegedly attacked the wallaby with the bat until it was dead, leaving a trail of blood as he dragged to body away.
Locals said two waitresses had to be escorted home after work because they were so traumatized from witnessing the incident.
'It's just out and out murder. Two sets of diners were there and there was blood left on the path. Everyone on the island is talking about it,' a local told the Gold Coast Bulletin.
RSPCA Queensland confirmed it was investigating the incident, as did Couran Cove director Lachlan McIntosh.
Mr McIntosh said the guard was immediately sacked and sent packing 'on the next boat off the island' once the resort found out.
He said the resort launched a formal investigation into the 'very distressing' incident and would deliver a report to the RSPCA this week.
Couran Cove is promoted as an eco-friendly resort where several hundred tame wallabies live among guests and are considered pets by full-time residents.
No charges were laid yet but the maximum penalty for serious animal cruelty is seven years' jail or a $235,600 fine.