VicRoads will be partly privatised for a period in a bid to generate $7.9 billion for the state.
A consortium of Aware Super, Australian Retirement Trust and Macquarie Asset Management will run licensing and registration for the next 40 years, while the state government maintains ownership of the service.
The move is the result of a 15-month modernisation program that started last year. Funds raised will go into the Victorian Future Fund to manage pandemic debt.
The state government will continue to manage data, privacy provisions and essential fee prices, and will regain control of all operations after the partnership ends, Treasurer Tim Pallas says.
"This is not a privatisation in anybody's language," Mr Pallas told reporters on Friday.
"We're always looking to see how we can drive better services, better performance, but we will never divest the ownership of assets."
Independent integrity bodies, including the Victorian Ombudsman, will still provide oversight.
Under the changes, learners and probationary licences as well as online testing will be made free.
Drivers who have not incurred demerit points or committed road safety offences in the three years prior to their licence expiring can also receive a 25 per cent discount on their licence renewal.
"We're embedding a culture of road safety in Victoria," Road Safety Minister Ben Carroll told reporters.
But the Victorian Greens have accused the state government of putting profit over people.
"With the privatisation of Port of Melbourne, the Land Titles Office, public housing estates and now VicRoads, Victorians have a right to know months out from the election what other public assets or agencies are on the government's privatisation hit list," Greens MP Sam Hibbins said in a statement.
