The plans, which apply to England, Wales and Northern Ireland, include banning branding and logos on cigarette packets and outlawing cigarette vending machines and packets of 10 cigarettes.
"Protecting children from smoking is a government priority and taking away temptation is one way to do this,” said public health minister Dawn Primarolo.
"If banning brightly coloured packets, removing cigarettes from display and removing the cheap option of a pack of 10 helps save lives, then that is what we should do, but we want to hear everyone's views first."
Both the Association of Convenience Stores and the National Federation of Retail Newsagents said the proposals would cost retailers millions.
Shares in Imperial Tobacco slipped 2.7% to £19.70 on the news, with analysts concerned a move to plain packaging was potentially serious for Imperial, according to the Financial Times.
Meanwhile, the government yesterday unveiled its youth alcohol action plan to tackle teenage drinking, with proposals including raising the legal age for children to drink alcohol at home and a 'two-strikes' rule on selling alcohol to children.