If it goes on to be approved by the Senate, Uruguay will become the first country to regulate the production, distribution and sale of marijuana.
The law is backed by the government of President Jose Mujica, which says it will remove profits from drug dealers and divert users from harder drugs.
Under the bill, only the government would be allowed to sell marijuana.
The state would assume "the control and regulation of the importation, exportation, plantation, cultivation, the harvest, the production, the acquisition, the storage, the commercialisation and the distribution of cannabis and its by-products".
Buyers would have to be registered on a database and be over the age of 18. They would be able to buy up to 40g (1.4oz) per month in specially licensed pharmacies or grow up to six plants at home.