The re-elected coalition government of liberal Prime Minister Xavier Bettel said "free public transport will be introduced in the Grand Duchy of Luxembourg's territory" from early 2020.
Part of the cost for the initiative will be footed by removing a tax break for commuters.
High school students are also provided with free shuttle services between school and their homes.
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Luxembourg City, the capital of the tiny, landlocked European country bears the infamy of being one of the worst traffic congestion-hit cities in the world.
Sandwiched between France, Belgium and Germany, from which nearly 200,000 people enter it daily to work, the Guardian reports.
Bettel, whose Democratic party will form a government with the left-wing Socialist Workers' party and the Greens, had vowed to prioritise the environment during the recent election campaign. On average, it's estimated that drivers in Luxembourg City spend an average of 33 hours in traffic in 2017.
On top of the transport pledge, the new government is also considering legalising cannabis, and introducing two new public holidays. The two-time prime minister promised voters that environmental concerns would be of paramount importance while he remained in office, The Guardian reported. But details of the plan still require some hashing out as there's yet to be a decision on what to do about the existing first- and second-class compartment on some trains. The result gave the coalition 31 seats in the 60-seat chamber.