The reforms aim to tackle Britain's "sick note" culture
Glasgow is among five cities where controversial changes to the UK's welfare system will be piloted.
Private and voluntary organisations and the city council will be invited to support those on long-term incapacity benefits back into work.
In return they will be allowed to keep money that would previously have been paid to claimants.
It is part of UK Government plans to get more than a million people off benefits and back to work.
The proposals, contained in a white paper published on Wednesday, would force people on benefits to do something in return for their money.
Those who refused to co-operate could have their benefits cut.
Glasgow has more than 53,000 people claiming incapacity benefit alone.
Scottish Secretary Jim Murphy confirmed that Scotland's biggest city would join Lambeth, Norfolk and Manchester as a "test bed" for the welfare "revolution".
Birmingham is expected to be named as the fifth pilot area.
Mr Murphy said: "We are committed to trying out new approaches to supporting those who are hardest to help, including those who have been on incapacity benefits for many years.
"Glasgow has made a huge amount of progress but a lot more can be done.
"The UK Government can't do it all, and that's why we are asking Glasgow to come forward with plans that will change the city for the better."
He added: "This is a different way of doing welfare and it will mark a dramatic change.
"This essentially means using money that would have been used to pay benefits in the future to invest in programmes now to get people off benefit and into work."
Glasgow City Council and a number of private organisations are expected to bid to run the scheme.
In return for successfully getting people back into work, those behind the programmes would get a proportion of the money the government saves in no longer having to pay out benefits.
Glasgow City Council leader Steven Purcell welcomed the reform proposals but said more could still be done.
He said: "If we are to make real strides in this difficult area I believe the rules need to be relaxed even further as they hinder us from getting the long-term unemployed back into work in this city.
"For example, we have been in discussion with the Department of Work and Pensions to create greater flexibility around the '16-hour rule' which prevents unemployed people from taking training courses which would help them into a job, because it would mean them losing their benefits.
"I am delighted the DWP has decided to allow the long-term unemployed to take training courses of up to eight weeks, but here in Glasgow longer courses are also required so that we can help those furthest from the job market into employment.
"We are also keen to see money provided for the New Deal for the Disabled to be channelled locally because we recognise that joined up, local approaches are the best way to tackle these complex issues."
The pilots announced on Wednesday are expected to start in March 2011 and run for three years.