Cannabis users will face new penalties when the drug is upgraded to class B from January next year, the Home Secretary said.
Jacqui Smith said those caught with cannabis for a second time will be fined £80 and after three strikes will be arrested.
The drug was downgraded to class C in 2004, but fears over the increased use of stronger "skunk" strains among young people prompted a policy review and U-turn.
Miss Smith said she was "extremely concerned" about skunk and its impact on mental health.
"While cannabis has always been illegal, reclassifying it to a Class B drug reinforces our message to everyone that it is harmful and should not be taken," she said.
"Fewer people are taking cannabis, but it is crucial that this trend continues. I am extremely concerned about the use of stronger strains of cannabis, such as skunk, and the harm they can cause to mental health.
"This is the next step towards toughening up our enforcement response - to ensure that repeat offenders know that we are serious about tackling the danger that the drug poses to individuals and, in turn, communities.
"We need to act now to protect future generations."