Under the law, police will be subject to routine testing for alcohol and drugs after critical incidents such as police shootings or high-speed chases that result in injuries.
The law will also give Ms Nixon unprecedented powers to order tests to protect the "good order or discipline of the force". This will open the door for possible targeted or random testing — including whole squads or stations.
The Police Regulation Act Amendment Bill (2007) will give senior police power to order junior officers to undertake drug and alcohol tests if it is suspected they have come to work under the influence and unfit for duty.
It is believed the Victoria Police Ethical Standards Department has already discovered evidence that some officers are using drugs and are involved in low-level trafficking.
In one case a police car was used to deliver pills to a group of off-duty police partying at an inner-suburban hotel.
Some senior police say they believe up to 10 per cent of young officers have dabbled with illicit substances. One policeman has died from an ecstasy overdose.
Senior officers want a system where police in high-risk areas, such as drug investigators, are regularly tested.
Police Minister Bob Cameron will introduce legislation in Parliament today to give Ms Nixon the powers, which she has been seeking for almost six years.
She met Mr Cameron early this year to discuss her concerns and recommended changes to the Police Regulations Act to support the new drug-testing powers. Mr Cameron promised to introduce the changes by the end of the year.
The Government has deliberately made the legislation broad in scope to enable Ms Nixon to increase drug testing if initial testing reveals a serious problem across the force.
Under the system, police who seek assistance will be offered an amnesty and receive treatment. Those caught through urine tests will face a Professional Standards Assessment Panel, which can recommend treatment, criminal charges and/or disciplinary action including dismissal.
The assessment panel will review the offender's employment history, the drugs used, whether he or she was affected while carrying out operational duties and if the drugs were "illegally obtained via work".
Under the welfare section of the new law, police health records will be protected as confidential to ensure they cannot be used against police who have or are receiving treatment for abuse problems.
NSW police have undergone drug testing for 10 years and this year increased the number or random tests to 2200.
Independent inquiries in NSW, Queensland and WA have found drug use by police is a serious problem that requires immediate action.
Another major change in the act will be to split the Office of Police Integrity from the Ombudsman's office. George Brouwer will retain his position as Ombudsman and a new OPI director with judicial experience will be appointed.