They have become the first country to make public transport entirely free throughout the country.
Luxembourg City has some of the worst traffic congestion in the world, The Guardian reported.
Most people working in the city commute from the neigbouring countries and are set to benefit from the free public transport system.
Re-elected Luxembourg prime minister Xavier Bettel will make all public transport in his country free from next Summer.
On top of the transport pledge, the new government is also considering legalising cannabis, and introducing two new public holidays.
The coalition government, which comprises Bettel's centrist Democratic party, the left-wing Socialist Workers' Party and the Greens, had campaigned on a promise of increased environmental protection and improved public services.
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Commuters now pay just €2 (£1.78) for up to two hours of travel, or €4 (£3.56) for a day ticket. This will also save money on fare collection and ticket inspection.
And secondary school students are provided with free shuttles between their places of study and their home.
The national public transport system now costs around €1 billion ($1.13 billion) each year to operate, but only recoups around €30 million ($34 million) in fares, The Independent explained.
As the paper noted, however, some of the finer points of the plan have yet to be ironed out, including whether trains will still have first and second class compartments and if so, if riders will be charged in those cases.
The new government coalition only just scraped through with 31 out of 60 seats in Chamber which might present a challenge when it comes to passing new, out-of-the-box policies and legislation.
Part of the cost of eliminating public transport fares will be covered by removing a tax break for commuters.
