The Victorian government will announce the early closure along with a $200 million transition package for timber workers in Tuesday's budget.
The state government had planned to phase out native logging in 2030, but the industry will now be closed by the end of 2024.
Logging activity had been hamstrung in recent months following legal action against state-owned forestry company VicForests for failing to protect endangered possums.
The Victorian timber industry employs about 15,000 people and accounts for about a quarter of Australia's log harvest volume.
The state government said every timber worker would be supported to find a new job.
"It's not good enough for us to just cross our fingers and hope for the best," Premier Daniel Andrews said in a statement.
"That's why we're stepping up to give these workers - and their communities, businesses, and partners along the supply chain - the certainty they deserve."
VicForests posted a loss of $52.4 million in the 2012/22 financial year as it navigated legal challenges, stand-down payments and compensation for failing to supply customers.
Agriculture Minister Gayle Tierney said the government had not taken the decision lightly, but uncertainty in the industry could not continue.
Australian Conservation Foundation campaigner and former forestry industry taskforce member Jess Abrahams said the decision reflected the work of conservationists, community groups and concerned Victorians.
"Community groups have spent countless nights out in the bush, spotlighting for endangered species in forests earmarked for logging, then working with lawyers to stop the chainsaws," Ms Abrahams said.
"This decision shows people power at work."
Ms Abrahams called on NSW, Queensland, Western Australia and Tasmania to follow suit.
Forestry Australia president Michelle Freeman said strategies for managing the nation's forests had largely failed to secure the promised balance between environmental, social and economic values.
"Australia has a moral obligation to reduce its growing trade deficit in timber products by finding pathways forward to meet more of our own domestic demand locally," Dr Freeman said.
Australian National University forestry ecology professor David Lindenmayer said the end of Victorian native logging was the equivalent to preventing emissions from more than 700,000 cars and would be positive for jobs.
"A major workforce will be needed to build new tourism infrastructure, protect and then boost carbon stocks, tackle problems with exploding numbers of feral deer and develop elite fire-fighting crews to make rural communities safe."
Victorian Forest Alliance campaign co-ordinator Chris Schuringa said conservationists had been fighting for the outcome for decades.
"The next priority is to focus on supporting workers through a just transition and restoring Victoria's native forests, which will provide real, lasting, sustainable employment for regional communities," he said.
Victorian Greens deputy leader Ellen Sandell welcomed the decision but stopped short of applauding the state government.
"For too long Labor has given millions of taxpayer dollars to the logging industry to destroy our precious native forests," she said.
Wilderness Society national campaigns director Amelia Young said the era of clearfell logging forests for pulp was overdue
The Victorian National Parks Association's Matt Ruchel said the organisation was elated.
"The news that the end of native forest logging in our state is to be brought forward is critical for the current and future health of our natural world, and the security of workers and community," he said.
AAP has contacted the CFMMEU, VicForests and the Australian Forest Products Association for comment.
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