It is also considering a more general ban on state employees wearing the headscarf and other religious symbols.
The measures are seen as an attempt to counter the rise of the far-right Freedom Party, whose candidate narrowly lost last month's presidential vote.
The centrist coalition nearly collapsed last week amid crisis negotiations over the government's future direction.
Detailing the package of reforms, the coalition devoted just two lines to the planned ban on the Islamic niqab and burqa.
"We are committed to an open society, which also presupposes open communication. A full-face veil in public places stands in its way and will therefore be banned," it said.
An estimated 150 women wear the full niqab in Austria but tourism officials have expressed fears that the measures will also deter visitors from the Gulf.
One government spokesman told an Austrian newspaper that the ban would apply for ski resorts such as Zell am See as much as the centre of Vienna.
Several European countries have imposed similar bans but the Austrian move is, according to the vice chancellor a "symbolic" step.
Integration Minister Sebastian Kurz said it was important to be seen to be neutral, especially for anyone dealing with the public in the police or schools.
France and Belgium introduced a burqa ban in 2011 and a similar measure is currently going through the Dutch parliament.
Chancellor Angela Merkel said last month that the full-face veil should be prohibited in Germany "wherever it is legally possible". The UK does not ban the niqab or burqa.
Further measures agreed by Austria's Social Democrats and their conservative People's party partners include electronic tagging of former jihadists and a proposed curb on foreign workers.
Many of the plans must be hammered out in detail and receive parliamentary approval before they can come into force, BBC Vienna correspondent Bethany Bell reports.
What is a niqab and a burka?
The niqab is a veil for the face that leaves the area around the eyes clear. However, it may be worn with a separate eye veil. It is worn with an accompanying headscarf.
The burka is the most concealing of all Islamic veils. It is a one-piece veil that covers the face and body, often leaving just a mesh screen to see through.