Chancellor Alexander Schallenberg said it would last a maximum of 20 days and there would be a legal requirement to get vaccinated from 1 February 2022.
He was responding to record case numbers and one of the lowest vaccination levels in Western Europe.
Many other European countries are imposing restrictions as cases rise.
"We don't want a fifth wave," said Mr Schallenberg after meeting the governors of Austria's nine provinces at a resort in the west of the country.
For a long time, there had been a consensus over avoiding mandatory vaccinations, the chancellor said.
However, too many people had been incited not to get the jab, because of "too many political forces, flimsy vaccination opponents and fake news", he added. The measures are yet to be finalised.
Latest figures show the incidence rate has risen to 1,049.9 cases per 100,000 people in the past week, and Health Minister Wolfgang Mückstein said imposing a lockdown was a "last resort". A record 15,809 cases were reported in the past 24 hours, in a population of under nine million.
Under the measures, Austrians will be asked to work from home, non-essential shops will close, and schools will remain open for children who require face-to-face learning. They will continue until 12 December, but will be reassessed after 10 days.
Neighbouring Germany has seen several days of record infections this week, and Health Minister Jens Spahn has spoken of "a national emergency that requires a combined national effort".
German leaders have already agreed to introduce restrictions for unvaccinated people in areas with high hospital admissions. And parliament has backed requirements for people to show Covid passes on buses and trains, and in workplaces.
But now in Bavaria, which borders Austria, state premier Markus Söder has gone further, declaring a "de facto lockdown for the unvaccinated". Bars and clubs will close for three weeks and all Christmas markets have been cancelled. Where weekly incidence rates top 1,000 per 100,000 people - restaurants, hotels, sport and culture will also close.
Slovak Prime Minister Eduard Heger has already announced that a "lockdown for the unvaccinated" will start on Monday, and the Czech government is also limiting access to a variety of services. The Netherlands introduced a partial lockdown last weekend.
In the UK - where there is currently no lockdown, although masks have to be worn in some parts of the country - the incidence rate per 100,000 is 395.4 cases, officials figures show.
Austria's is the first full lockdown imposed by an EU country this winter.
The Europe regional director of the World Health Organization, Hans Kluge, has warned of a hard winter ahead. He blamed insufficient vaccination coverage along with "the easing of preventive measures and the spread of the more transmissible Delta variant".
Russia on Friday declared a record number of 1,254 Covid deaths in the past 24 hours, for the third day in a row.
Hungary reported its highest level of infections - with 11,289 new cases in a population of 10 million. A third booster jab will be made mandatory for health workers from Saturday, along with masks in most enclosed spaces.
Tighter restrictions also come into force in Belgium on Saturday, requiring working from home for four days a week.
Is Europe heading for lockdown?
There are only two ways for countries to slow the spread of Covid - build up enough immunity or limit contact between other people.
That wall of immunity - from a year of vaccination - is facing its first real test as winter rolls in across Europe.
It is already clear some countries - Austria being the most notable - have not vaccinated enough and feel the "need" to go back to restrictions that nobody "wants".
But it does not mean that every country is doomed to a winter lockdown.
Those that have vaccinated more, given boosters to more and protected more of the vulnerable and elderly (who are the most likely to need hospital care) have the best shot at a manageable winter.
The impact of the UK having high levels of Covid through autumn, which will have topped up immunity levels, will be closely watched too.
However, it is still only November. There are many dark months to get through before the weather improves and makes it harder for Covid to spread.