Bihar will go dry from April 1, 2016, Chief Minister Nitish Kumar announced on Thursday.
The chief minister made the announcement - a part of his election pledge - at an official function to mark Prohibition Day.
He said the poorest of the poor had been consuming liquor, badly hitting their families and their children's education.
Increasing liquor consumption was also a major cause for domestic violence, particularly against women, and had contributed to a rise in crimes.
"Women are suffering more than anyone else due to increasing liquor consumption," he said.
An official at the chief minister's office said Nitish Kumar took the decision after a high-level meeting with officials.
In July, Nitish Kumar had declared that prohibition would be imposed if he retained power in the assembly elections.
Bihar Excise and Prohibition Minister Abdul Jalil Mastan had earlier said that the state government would soon take steps to impose a liquor ban.
Bharatiya Janata Party leader Sushil Kumar Modi on Wednesday vowed to support a liquor ban.
The decision is expected to derail the government's financial health.
The excise department went into an overdrive in 2007 following a new policy and started issuing licences for marketing liquor across the state.
The revenue collection of excise department registered a more than 10-fold jump, from Rs.319 crore in 2005-06 to Rs.3,650 crore in 2014-15.