Hardcore heroin and crack cocaine users could be jailed if they refuse to get treatment while receiving unemployment benefit.
Jobless addicts who try to dodge the rules by hiding their habit will instead be deemed welfare cheats obtaining state handouts by deception.
They could be ordered to repay any cash received and in the worst cases charged with fraud, which carries a prison term.
Ministers are also considering switching anyone who is out of work because of drug use from sickness benefit to a new treatment allowance - in an attempt to shame them into finding a job.
The plans are part of a Green Paper to be published today detailing the most radical reform of the welfare state in more than 60 years.
Work and Pensions Secretary James Purnell will defy criticism from the Labour Left and disability groups to push through tough measures to tackle the sicknote culture.
In one of the most controversial proposals, the estimated 240,000 drug addicts on benefits will be required to seek treatment in return for their money.
Those who refuse to admit their addiction to welfare chiefs could be forced to take a drugs test and made to pay back any illegally obtained benefits.
Police may also get the powers to prosecute them for fraud.
Although officials stressed that those using recreational drugs will not be covered by the proposed regime, it could in future be extended to 'those dependent on cannabis and alcohol'.
Mr Purnell said yesterday: 'The welfare state shouldn't be helping people to harm themselves.
'Support is only offered if it is matched by a personal commitment to get clean.'
The Blairite high-flyer, touted as a future Labour leader, will also replace incapacity benefit with 'employment support allowance' as part of a package which stresses there can be 'no right to a life on benefits' for anyone capable of working.
Up to two million people will be tested to see what they can do - not what they are unable to - after claims that a third of the 2.7million incapacity benefit claimants are playing the system.
Only those too disabled will be able to avoid work. Their weekly payments will rise from £86.35 to £102.10.
Income support claimants will be moved on to jobseekers' allowance.
And single mothers will have to seek work once their children turn seven. At present they can remain on benefits until their children reach 16.
Labour will take a risk by unveiling the tough measures days ahead of Thursday's crucial by-election in Glasgow East, where many voters are reliant on state handouts.
However Mr Purnell, who obtained clearance from the Labour campaign team before publishing it, is said to believe it will be popular among poorer voters who often have more draconian views on welfare cheats than the liberal middle classes.
David Cameron said the Tories would help the Government get the proposals through the Commons if Labour rebels try to block them.
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