If passed, Australia's criminal code will be amended to prohibit hate symbols and could see people who display Nazi insignia facing up to a year in prison.
Selling Nazi memorabilia will also be made an offence and banned in retail and online stores.
However, the Nazi salute will not be banned because it falls under the jurisdiction of states and territories.
The move followed violent clashes between neo-Nazi demonstrators, counter-protesters and police at anti-immigration and anti-trans protests in Melbourne, as well as security agency warnings about extremism.
Attorney-General Mark Dreyfus on Wednesday introduced the proposal to outlaw the two Nazi symbols Hakenkreuz and Schutzstaffel.
"The Albanese government is taking a significant step toward sending a message that Australia is united against displays of hate," he told parliament.
He said extremist insignia were an effective propaganda tool "because they are easy to remember and understand" and transcended language and cultural divides.
The legislation would not affect the use of the swastika for people observing Hinduism, Buddhism and Jainism.
Displaying the symbols for journalistic, educational or artistic purposes is also exempt from the ban.
The proposal has been welcomed by Jewish organisations and the national spy agency which believed outlawing Nazi symbols could help stop extremist radicalisation and recruitment.
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