Commuters need only pay €2 (US$2.20) for up to two hours of travel, which in a country of just 2,590 square kilometres covers nearly all journeys.
Part of the cost of eliminating public transport fares will be covered by removing a tax break for commuters.
Claude Moyen, a teacher who travels by train to his school in the town of Diekirch every day, told the Independent he feared the quality of journeys might suffer.
Luxembourg has previously shown it has a forward-looking attitude towards transport - over the summer, the government introduced free transport for young people under the age of 20.
A free shuttle service is provided for secondary school students between their homes and school and earlier this year free transport was introduced for under 20s.More news: Huawei’s CFO Meng Wanzhou Arrested and Now Everyone Is Very Nervous
The policy will save the government money on the collection and policing of ticket purchases.
The country has a population of almost 600,000 - but its capital, Luxembourg City, has some of the worst traffic congestion on the planet. It may be small, but its capital-Luxembourg City-is regularly snarled up by some of the worst traffic in the world.
The move to make all public transport in Luxembourg free is aimed at reducing the country's traffic congestion.
Luxembourg absorbs daily 190,000 workers and employees from neighbouring countries, half of them in France and the other half split between Belgium and Germany.
Drivers spent an average of 33 hours in traffic jams in 2016, according to a study.
The government, however, has yet to divulge their plans for the first- and second-class compartments on trains. The result gave the coalition 31 seats in the 60-seat chamber.