Under tough new conditions attached to welfare payments, hundreds of thousands of claimants will be required to carry out community work such as collecting litter, cooking meals for the elderly or cleaning graffiti.
Announcing the US-style Help to Work scheme in his keynote speech to the Conservative Party conference in Manchester today, Mr Osborne will say the change will end the "something-for-nothing culture".
Claimants who have been out of work for three years and fail to find a job through the Coalition's flagship Work Programme will be required either to do 30 hours a week of community work, report to a job centre daily, or undergo intensive treatment to tackle problems such as illiteracy or mental illness, he will say.
Those who break the rules, for example by failing to turn up for duties without a good reason, could lose their benefit for four weeks. A second offence would see them lose out for three months.
He told ITV1's Daybreak: "We are saying there is no option of doing nothing for your benefits, no something for nothing any more. People are going to have to do things to get their dole and that is going to help them into work.
"That's the crucial point. This is all activity that is going to help them get ready for the real world of work.
"In order to make sure that people are ready for jobs, they have got to have the right skills and the right work talents, the right work attitudes, and this programme is going to deliver that. It is going to create a culture where people are ready for work."