The legislation, currently before the Chinese capital's parliament, would see businesses fined 500,000 yuan (66,000 dollars) or have their licences revoked if they use substandard ingredients.
The planned law is part of a push by politicians to overhaul the city's food safety system, "particularly to avoid any scandals during the upcoming Olympic Games," the China Daily said.
Beijing lawmaker Lin Wenyi said the standing committee of Beijing's parliament had found many small restaurants in the city were operating without legal licences.
"Their sanitary situation is extremely poor, which poses severe food security hazards," Lin said, adding their were many loopholes in the city's food safety system.
International alarm over Chinese food exports has been building for months amid reports of toxic produce endangering lives in the United States and other countries.
And while it is ordinary people in China who suffer most from a substandard food system, authorities are working overtime to ensure that athletes and visitors to next year's Olympics eat only healthy products.
China has already announced that will introduce a food monitoring and daily reporting system at next month's test events for the Olympics.