Legislation passed by parliament on Tuesday means that anyone born after 2008 will never be able to buy cigarettes or tobacco products.
It will mean the number of people able to buy tobacco will shrink each year. By 2050, for example, 40-year-olds will be too young to buy cigarettes.
Health Minister Ayesha Verrall, who introduced the bill, said it was a step "towards a smoke-free future".
"Thousands of people will live longer, healthier lives and the health system will be NZ$5 billion (US$3.2 billion) better off from not needing to treat the illnesses caused by smoking," Dr Verrall said.
New Zealand's smoking rate is already at historic lows, with just 8% of adults smoking daily according to government statistic released in November - down from 9.4% last year.
It is hoped that the Smokefree Environments Bill will reduce that number to less than 5% by 2025, with the eventual aim of eliminating the practice altogether.
The bill is also designed to limit the number of retailers able to sell smoked tobacco products to 600 nationwide - down from 6,000 currently - and reduce nicotine levels in products to make them less addictive.
"It means nicotine will be reduced to non-addictive levels and communities will be free from the proliferation and clustering of retailers who target and sell tobacco products in certain areas," Dr Verrall said.
