The video-sharing website was initially spared from the world-first national ban for under-16s as part of an exemption for health and education services.
But after receiving advice from eSafety Commissioner Julie Inman Grant, the federal government decided to include the platform as part of the social media ban.
Under the changes, children won't be allowed to have YouTube accounts that allow users to watch age-restricted videos.
Children will still be able to access YouTube Kids or view any videos accessible while not logged into the platform.
Social media expert Tama Leaver from Curtin University said there was no evidence that the planned tools would be good enough to verify users' ages, although a final report into measures to enforce the ban was still due to be released.
"There is a gaping hole in this policy," he told AAP.
"We should have the technical road map for how this is expected to work.Â
"The government should have been able to say to platforms, 'these are things that we believe are reliable enough'."
Swinburne University media expert Belinda Barnet said YouTube wasn't a "special case" as the company had been arguing, with the platform presenting the same risk of harm as any social media site.
"We can expect there's going to be a very difficult period where the platforms make 'first pancake' mistakes in Australia and there's an adjustment period," she said.
Prime Minister Anthony Albanese acknowledged parents who had lost their children to suicide following social media abuse and thanked them for their courage in speaking in favour of the ban.
"Their stories are felt by countless other parents and by communities right across the country," he told reporters in Canberra on Wednesday.
Mia Bannister, who lost her 14-year-old son Ollie in 2024, said parents had been advocating for greater protections for young people.
"It wasn't the result of one voice, but the power of many united in purpose, driven by hope and committed to protecting our kids," she said.
YouTube said it shares the government's goal to reduce online harm but argues that it differs from others and is not a social media platform.
"We will consider the next steps and will continue to engage with the government," a spokesperson said.
YouTube also says it is often used as an educational resource by teachers in the classroom.
The platform's inclusion was foreshadowed after the online safety watchdog in June cited research that found children were exposed to harmful content on YouTube more than on any other platform.
It will join other platforms, such as Snapchat, Facebook, Instagram and TikTok, which were included under the ban when legislation passed parliament in 2024.
Communications Minister Anika Wells said social media platforms had been "on notice" since December and were given 12 months to develop verification processes.
"We can't control the ocean, but we can police the sharks, and that's why I will not be intimidated by leaving threats when this is a genuine fight for the wellbeing of Australian kids," she said.
Opposition communications spokeswoman Melissa McIntosh described the backflip on exempting YouTube as a "blatant broken promise" to Australians.
"We are concerned that the eSafety Commissioner is testing boundaries which are moving beyond what Australians are comfortable with," she said.
YouTube's parent company Google has already threatened to sue Australia on the grounds that a ban would restricts the implied constitutional freedom of political communication.
Educators can continue to use school-approved educational YouTube content through their own accounts.
Under the legislation, age-restricted social media platforms will face fines of up to $49.5 million if they fail to prevent people younger than 16 from creating accounts.
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