Welfare must be fair and promote work, Mr Grayling said
People will be unable to claim unemployment benefits if they turn down "reasonable" job offers under a welfare shake-up proposed by the Conservatives.
Work spokesman Chris Grayling told the Tory conference he wanted to end the idea of welfare as an "entitlement".
The Tories plan increases to the amount of support for the unemployed through a network of "back to work" centres run by private and voluntary bodies.
Those repeatedly refusing job offers would lose benefits for three years.
Reform of the welfare system was a key component in addressing Britain's "broken society", Mr Grayling said.
Describing welfare as a "two-way contract", he said the Tories would transform the level of support available to those out of work.
"High quality" help would be offered to people to enable them to look for work and use their existing skills in different areas.
Voluntary and private bodies would be asked to run a network of "back to work centres" and would be paid on the basis of their results in helping people find jobs.
People unwilling to take up the help on offer risk losing their benefits, with those refusing three "reasonable" job offers being excluded from the benefits system for three years.
In addition, those who cannot find work and claim jobseekers allowance for two years will be required to take part in a year-long community work programme.
"No one benefits from sitting at home on benefits," Mr Grayling said.
He added: "When people get a reasonable job offer, they will be expected to take it. It is much better to be in a job and looking to move on to something else, than sitting at home hoping the right thing will come along."
Further measures would see those on incapacity benefit having to undergo independent medical tests to assess their ability to work.
With the threat of recession looming and unemployment levels steadily rising, Mr Grayling said the reforms were even more vital to supporting the economy.
"Good quality, well delivered welfare reform helps countries cope with more difficult economic times," he added.
The Lib Dems said the Tories' plans would do little to help the long-term unemployed or provide greater incentives to work.
"Only last week they were accusing Labour of failing to make sure that work pays but there is nothing on how the Tories would reverse this trend," said Lib Dem work spokeswoman Jenny Willott.