From Monday, people will be able to travel further and meet up with more friends without a time limit on how long they spend outside the home.
But strict measures remain in place for restaurants and retailers, limiting them to takeaway and delivery options.
The city of Melbourne, which has been under stricter lockdown, will also have rules eased.
As of 19 October, in Melbourne:
People can travel up to 25km (15 miles) from their home for exercise or shopping
Gatherings of up to 10 people from two different households are allowed
There will be no more time limit on outdoor socialising and exercise
Hairdressers, tennis courts, golf courses and skate parks reopen, subject to Covid-19 restrictions
In addition, in regional Victoria:
Two adults and two children will now be allowed to visit another person's home
Hospitality venues will be allowed to accommodate 70 patrons outside and 40 inside
"I know these changes can't be absolutely everything everyone wants," State Premier Daniel Andrews said.
"But they are the steps we can safely take that will make life a little bit easier.
"Follow the rules and get the numbers in Melbourne as low as they are in regional Victoria. Then we will all be able to move freely around our state."
State officials also hope to further ease restrictions on 2 November - including allowing home visits for small groups, no restrictions on reasons why people can leave home, more businesses to reopen and larger gatherings.
But many business owners are frustrated that they cannot reopen, or that tight restrictions remain in place. Beauty therapist Brooke Allan told broadcaster ABC she was disappointed that her businesses was not on the list of those allowed to reopen yet.
"We can't book our clients in, we've just been told so many different dates," she said. "It's really difficult just being in this limbo all the time."
Prime Minister Scott Morrison welcomed the decision to loosen the strict controls but sympathised with businesses' "frustration and concern".
"Every day Victoria remains under restrictions to get the second wave in Victoria under control comes at a heavy cost," he said in a joint statement with the treasurer and health minister.
He and his government have been urging Victoria to ease its measures faster and further in recent weeks as case numbers have dipped.
According to Victoria's health department, the state recorded two cases in the last 24 hours on Sunday. This is far below a peak of 687 reported on 4 August.
Overall Australia has recorded more than 27,000 infections since the pandemic began.
New case numbers have dropped recently, allowing the country to open a travel bubble with New Zealand on 2 October. The first travelers arrived in Sydney from Auckland on Friday.
However, they have already run into trouble, with 55 of the arrivals travelling on from Sydney to Victoria. Under the original agreement, they could only stay in New South Wales and the Northern Territory without the need for a mandatory quarantine.
Victoria health authorities said their officials "continue to meet incoming flights at Melbourne Airport and provide information to arriving passengers" about local coronavirus regulations.
Officials in Western Australia have also announced that 23 people have arrived in the state from New Zealand. They are all in quarantine.