It's already a criminal offence to display the Nazi swastika but the new bill will also prevent people from intentionally displaying or performing a Nazi gesture or symbol in public.
Those who do so will face fines of more than $23,000 or 12 months in prison.
The ban will include a broad range of symbols and gestures used by the historic Nazi Party and its paramilitary organisations to ensure those who deliberately try to circumvent the ban are punished.
"Victorians have zero tolerance for the glorification of hateful ideology," Attorney-General Jaclyn Symes said in a statement.
"We're making sure people who use these symbols and gestures to harass, intimidate and incite hate are held accountable for their cowardly behaviour."
Exceptions will apply if the performance or display of a Nazi symbol or gesture is done in good faith for a genuine academic, artistic, educational or scientific purpose.
While the offence will not prohibit the trade or sale of historical memorabilia, traders will need to cover any Nazi symbols or gestures on items that are publicly displayed.
The legislation will come into effect immediately after passing parliament and receiving royal assent.
Police will have the power to direct a person to remove a Nazi symbol or gesture from public display, and to arrest and lay charges.
Officers will also be able to apply for search warrants to seize property displaying a Nazi symbol or Nazi gesture.
Anti-Defamation Commission chair Dvir Abramovich said the ban sends the clear message that symbols of division and hate will not be accepted in Victoria.
"The ultimate gesture of inhumanity will never find shelter here," he said in a statement.
The Victorian legislation was fast-tracked after a group of neo-Nazis crashed a Melbourne rally in March and performed the Nazi salute on the steps of parliament.
Tasmania earlier this month became the first Australian jurisdiction to ban the Nazi salute.
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