The video-sharing website was initially spared from the world-leading ban for under-16s as part of an exemption for health and education services.
But after receiving advice from eSafety Commissioner Julie Inman Grant, the federal government decided to include the platform.
Under the changes, children won't be allowed to have YouTube accounts that allow users to watch videos that are age-restricted.
However, they won't be banned from the platform outright as they will still have access to YouTube Kids.
Prime Minister Anthony Albanese recognised the parents who had lost their children to suicide following social media abuse and thanked them for their "courage".
"Their stories are felt by countless other parents and by communities right across the country," he told reporters in Canberra on Wednesday.
"We know that social media is doing social harm, and my government and this parliament is prepared to take action to protect young Australians."
Mia Bannister, who lost her 14-year-old son Ollie in 2024, said parents had been advocating for greater protections for young people.
"It wasn't the result of one voice, but the power of many united in purpose, driven by hope and committed to protecting our kids," she said.
YouTube said it shares the government's goal to reduce online harm, but argues that it differs from others and is not a social media platform.
"YouTube is a video sharing platform with a library of free, high-quality content, increasingly viewed on TV screens - it's not social media," a spokesperson told AAP.
"We will consider the next steps and will continue to engage with the government."
The platform also argues it is often used as an educational resource by teachers in the classroom.
The platform's inclusion was foreshadowed after the online safety watchdog in June cited research that found children were exposed to harmful content on YouTube more than on any other platform.
It will join other platforms, such as Snapchat, Facebook, Instagram and TikTok, which were included under the ban when legislation passed parliament in 2024.
Communications Minister Anika Wells said social media platforms had been "on notice" since December and were given 12 months to develop verification processes.
"Each platform works differently, obviously they're all competitors, that means they need to work on a one-on-one basis with the eSafety commissioner," she said.
Ms Wells said parents were doing their best but "it is like trying to teach your kids to swim in the open ocean with the rips and the sharks compared to at the local council pool".
"We can't control the ocean, but we can police the sharks, and that's why I will not be intimidated by leaving threats when this is a genuine fight for the wellbeing of Australian kids."
YouTube's parent company Google has already threatened to sue the federal government on the grounds that a ban would restricts the implied constitutional freedom of political communication.
Educators can continue to use school-approved educational YouTube content through their own accounts.
Under the legislation, age-restricted social media platforms will face fines of up to $49.5 million if they fail to prevent people younger than 16 from creating accounts.
There are concerns about the potential impact a ban might have on marginalised children, particularly those in rural or regional Australia who use the internet to seek community online.
Lifeline 13 11 14
Kids Helpline 1800 55 1800 (for people aged 5 to 25)
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