Teenage parents will have their welfare payments cut if they don't return to school to finish year 12 when their baby turns one.
Young mums and dads will also have to attend Centrelink meetings six months after their baby is born to help them prepare for a return to school.
The tough new measures are part of a $47.1 million package included in the Gillard government's budget, which is expected to feature an overhaul of the welfare-to-work system.
Announcing the measure in Sydney, Prime Minister Julia Gillard said it brings together opportunity and responsibility for young people.
"This is about engaging parents so they have a better life and their child has a better life," she said.
About 11,000 teenagers currently receive the parenting payment and they don't have to look for work until their child turns six.
Around 4000 young parents will be subject to the new rules under a trial the government will start in 10 disadvantaged communities from January 2012.
Under the trial, participants will have their parenting payments, worth up to $625 a fortnight, cut if they don't go back to school after a year at home.
Their benefits will also be suspended if they fail to attend Centrelink meetings in the lead up to their return to school or year 12 equivalent education. It will be back-paid when the participant meets the obligations.
Participants will also get extra support to cover most of the cost of childcare and parenting education classes.
Mission Australia, a charity that works with disadvantaged people including young parents, has backed the concept but says the trial will need to be monitored closely.
"Compulsory participation fails to promote personal responsibility and that's the crucial part of changing behaviour long term," CEO Toby Hall said in a statement.
"There's no question that the best results are achieved from programs like this when people participate voluntarily."
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