Childcare providers who hike fees to take advantage of new rebates will be held to account if they're "rorting the system".
Education Minister Simon Birmingham says the new childcare funding system - which comes into effect on Monday - is the biggest change in 40 years.
"We will hold childcare providers to account and if they appear to be rorting the system or abusing the system, we'll be watching," the senator said.
"We will be calling them out because we want to make sure that these benefits go to the families who deserve it most."
Under the changes, households with an annual income under $186,958 will no longer face a cap on the rebate paid each year.
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
But both parents must be working, studying, volunteering or searching for work at least eight hours a fortnight to be eligible.
A price benchmark has been introduced to ensure providers don't rort the system, with more than 85 per cent of childcare centres currently below that mark.
Senator Birmingham said uncapping the rebate meant parents who wanted to work an extra shift could do it without worrying their pay would be "gobbled up" by childcare payments.
Families earning above $187,000 a year will see their cap lifted from $7500 a year to $10,000.
Labor claims one-in-four families will actually be worse off under the changes because they won't meet the eight hours a fortnight activity requirement.
Opposition early childcare education spokeswoman Amanda Rishworth argued this would cost families earning less than $65,710 an average of $5300 to replace the care they would lose.
"This unfair new system will hurt many vulnerable and low income families," she said.
Prime Minister Malcolm Turnbull said more than 200,000 parents would be encouraged to work or study.
"It is a much fairer child care subsidy system, and it is one that is targeted to benefit those on lower incomes and middle incomes and those that are participating," he said in Sydney.
Senator Birmingham said the majority of families would be $1300 better off each year.
But families earning more than $350,000 won't be eligible for the subsidy,
