The much-anticipated announcement comes after the state recorded the first day of no new coronavirus cases or deaths since early June.
All retail and hospitality businesses in Melbourne have been given the green light to reopen within days, after the state recorded zero new coronavirus cases and deaths for the first time in more than four months.
From Wednesday, the "four reasons to leave home" rule will also be scrapped, allowing Victorians to leave their homes for any reason. Up to 10 people from any number of households will be able to gather outdoors.
But Premier Daniel Andrews said Victorians will have to wait until Tuesday to find out what rules will be in place for social visits within the home.
"It is just a matter of settling the arrangements and having them as simple as they can possibly be," an emotional Mr Andrews said as he addressed reporters in Melbourne. "Now is the time to open up."
When restrictions lift at 11.59pm on Tuesday, Melbourne restaurants, hotels, cafes and bars will be able to host up to 50 patrons outdoors and an additional 20 inside - subject to social distancing requirements.
Beauty services, tattoo parlours, and any other service permitting you can wear a mask can reopen at the same time.
Limits on weddings will be increased to 10 people, while 20 mourners will be allowed at a funeral. Indoor religious ceremonies will be permitted with a maximum of 10 people or 20 if the service is outdoors.
Further restrictions will be eased on 8 November, Mr Andrews said, including the lifting of the 25-kilometre travel bubble and the 'ring of steel' border between Melbourne and regional Victoria.
"The state will be one again," he said.
Gyms and fitness venues will also be able to reopen in Melbourne on 8 November, subject to a one-person per eight square metre rule.
Hospitality limits will also increase to a maximum of 40 patrons indoors and 70 outside, and outdoor faith services and funerals will grow to 50 people.
As the state reopens, however, Victorians will still be required to wear a face mask when in public, with no changes to the mandatory rule foreshadowed.
Prime Minister Scott Morrison said the easing of restrictions was essentially the first step towards opening the nation up by Christmas.
"We need to ensure that Victoria stays safely open and that we would never have to go back under the sorts of measures that you’ve been put through over recent months," he said.
"I look forward to working with the Premier as we work through the additional steps that will be necessary in the months ahead."
Chief executive of the Victorian Chamber of Commerce and Industry, Paul Guerra, said there was "a sense of optimism" among businesses owners following the government's announcement.
"Hospitality, beauty and retail business owners are delighted, and although there are some restrictions on hospitality, it’s only a short wait until those limits will be increased," he said in a statement on Monday afternoon.
"The news that we will become one Victoria again from 8 November will give comfort to so many Victorians and that date can’t come quick enough."
The Australian Retailers Association, the peak body for retail businesses, also welcomed the announcement, declaring Christmas back on.
“Victoria plays such a vital role in the national retail industry. It is the heart of the distribution and warehousing and it makes up a quarter of national retail sales," chief executive Paul Zahra said.
"It’s not Christmas without Victoria. We are elated that Christmas is finally on in every state and territory, now that Victoria will finally be open for the holiday shopping season.”
The Australian Hotels Association (AHA), however, said while the plan was a step in the right direction, the rules around density limits lacked consistency.
"The government needs to have greater trust in us and our patrons in adhering to COVID-safe operating plans," said Victorian President of the AHA David Canny.
"There are inconsistencies among other industry sectors whereby some retail stores do not have any caps on patron numbers or customer digital contract tracing."
Victorian residents were also quick to share their excitement and plans to celebrate at the pub, with "get on the beers" trending nationally on Twitter after the media conference.
When asked to confirm whether beers were back on the table, Mr Andrews said: "I don't know that I'll get on the beers, I might go a little higher up the shelf".
His announcement came a day after delaying the announcement of "significant" changes due to caution over an outbreak in Melbourne's north.
Six of seven new cases recorded on Sunday were linked to the northern suburbs cluster, which has recorded 39 cases across 11 households. But after a massive testing blitz, no new infections were found.
"It was worth waiting to be absolutely confident, to be sure, that our team had their arms around those positive cases and fundamental control of the outbreak," Mr Andrews said, as he outlined the changes in Melbourne on Monday.
"We are confident that with these numbers and all of them being negative that we, in fact, can rule out widespread community transmission."
Health authorities announced zero new COVID-19 cases and deaths for the first time since 9 June on Monday, bringing Melbourne's 14-day rolling case average to 3.6 and regional Victoria's to 0.2.
In the two weeks to 23 October only seven mystery cases were recorded, all in Melbourne, and only four cases still linked to residential aged care.
Australia's coronavirus death toll sits at 905, with 817 of the fatalities in Victoria.
People in Australia must stay at least 1.5 metres away from others. Check your jurisdiction's restrictions on gathering limits. If you are experiencing cold or flu symptoms, stay home and arrange a test by calling your doctor or contact the Coronavirus Health Information Hotline on 1800 020 080.
News and information is available in 63 languages at sbs.com.au/coronavirus.