The new bill grants gay partners and parents of surrogate children legal parenting rights.
Besides it eradicates the need for surrogate couples to travel interstate to access reproductive treatment and allow women to conceive using the sperm of their dead partners, with prior consent.
Victorian Premier John Brumby described it as a "landmark legislation" that respects diversity of families, without sitting on judgment.
Speaking a day after the upper house passed the controversial bill, Mr Brumby said the laws were a positive step and praised MPs for conducting a respectful debate.
"It's about respecting that there are different types of families in our society and that the interests of children are paramount and that's what the legislation gives effect to," Mr Brumby said on Friday.
"It's government in a sense getting out of the way of individuals and families - letting them make judgments without us passing judgment on what we think is right or wrong, and putting the interests of children at the forefront."
The Victorian upper house narrowly passed the bill 20-18 on the final sitting day of parliament for the year.
It means Mikaela Olijnyk and Naomi Paton can now have the family they've planned together.
"One of us has medical infertility and the other doesn't and we both want to carry a child with two children related through the same donor in a way that would allow our family to be related to each other," Ms Olijnyk said.
"We would fly to Perth on Wednesday to meet with a potential donor and start the negotiations," Ms Paton said.
Natasha and Melissa had to go to great lengths to conceive their son Caius.
"We had to travel interstate every month to track ovulation and travel interstate every month in order to access donor sperm. We couldn't have access to any medical assistance at all in Victoria because I'm not infertile," Natasha said.
"I felt like we weren't considered good enough to have children, that our family is not recognised and not valued because we're not straight."
There was celebration in the Upper House of Victoria's Parliament as the votes were counted last night.
The Lower House gave the Government's Assisted Reproductive Treatment Bill the final tick of approval soon after.
Victoria's Attorney-General Rob Hulls says the states laws are no longer in breach of the Federal Sex Discrimination Act.
"There are kids that are being born to all sorts of arrangements and they don't have appropriate legal protections and so this legislation ensures that children - regardless of the arrangements under which they've been born - are protected," he said.
"This legislation was always about kids and ensuring that children born into same sex families or as a result of surrogacy arrangements are not discriminated against."
However, there is a rider to the new enabling measure - those seeking fertility treatments must submit to controversial police checks and have a record free of convictions for sexual or violent offences and child protection orders.
Mr Brumby defended the clause, which was hotly contested, saying while it would be inconvenient for some people it was an appropriate safeguard.
"It's an issue really about whether the support is provided to someone who potentially has previously shown that they're not capable of bringing up children, or for example, have abused children.
"It's just aiming to protect the public interest and, I think, if you had a position where a couple who had a long history of abusing children wanted to use these procedures you'd say, well is it appropriate that a couple in those circumstances should be supported by the state, supported by taxpayers in this way?
"I think the overwhelming majority of the public would say it's not appropriate."
But some women and doctors say the new laws themselves are discriminatory because they include such mandatory criminal background checks for prospective mothers.
The medical director of Ballarat IVF, Dr Russell Dalton, apprehends the proviso on background checks could delay fertility treatment in some urgent cases.
"If we have to wait for the processing of police checks prior to undertaking fertility treatment for a person who for example has breast cancer at the age of 28 and is embarking upon invasive and aggressive chemotherapy, that person is going to be significantly disadvantaged. There's no doubt about that," Dr Dalton said.
Ms Paton doesn't think she should have to pass a criminal check to get access to fertility treatment.
"We don't need the police to tell us whether we're suitable to be parents. I think it's actually quite insulting," she said.
Mr Hulls says the requirement is meant to protect children and it's not discriminatory.
"We believe we have a responsibility to kids that are born of these arrangements and as a result we believe that police checks are appropriate," Mr Hulls said.
"We don't believe it will cause any inconvenience and it will ensure that any possible, unacceptable risk of harm at least can be addressed through police checks."
Some women aren't concerned about the background checks, including Vicky who has already become a mother through IVF.
"It can't be any more invasive than the vaginal probes that you have to have every second day for scanning," she said.