The Andrews government will introduce legislation after the winter break to regulate ridesharing. Parliament rises on Thursday and does not return until August 16.
Labor has been criticised for taking too long to regulate ridesharing despite widespread use in the state. The Opposition supports legalising Uber as does the Sex Party.
Sex Party Leader Fiona Patten had introduced a private member's bill in the upper house to legalise Uber but a deal has been struck to avoid a potentially embarrassing vote for the government this week.
Under the deal Ms Patten's bill will be used as the foundation for regulation, with assurances given to the minor party that a "framework" will be tabled after the winter break.
The process is similar to the way the Sex Party's push for protester buffer zones around abortion clinics was eventually introduced as a bill by Labor.
Public Transport Minister Jacinta Allan said details still needed to be worked through and the experiences of other states would be looked at.
Premier Daniel Andrews said the government "was going to do it properly".
"I think getting this right is the most important thing. We are a step closer to being able to regulate this industry," he said.
The government faces many challenges including how much to charge Uber drivers to register, licensing,, compensation for the vocal taxi industry and ensuring 750,000 trips taken every year by disabled people in taxis were not impacted.
Uber driver Nathan Schill said he began driving full-time for the ridesharing service in January after working as a salesman and prior to that as a mechanic. He said regulating Uber would make it safer for drivers and passengers.
Ms Patten said any compensation for taxis needed to be done on a case-by-case basis.
"The taxi industry itself has to recognise they need to keep up with technology, they need keep up with what the consumer is demanding... and catch up," Ms Patten said.
Disability groups have been concerned that the rise of Uber will decrease the availability of wheelchair access taxis, which has been the experience in some US cities.
Taxi journeys are subsidised by the state up to $60 per trip for people with a severe or permanent disability. Drivers are also paid a "lifting fee" of $16 to pick up people in wheelchairs or scooters.
There have been calls for this type of subsidy to be extended to ridesharing including by Ms Patten.
Disabled Motorists Australia president Emilio Savle said people with disabilities had the right to ride in any public transport vehicle.
Mr Savle said UberAssist was currently available for people with disabilities but mobility aids needed to be able to fold up and put in a conventional car. And passengers needed to be able to transfer out of their mobility aid and into the car.
"I haven't called an Uber because I know I won't be able to use the service," he said.
The Victorian Taxi Association said it was not surprised by the government's move, saying it was appropriate to regulate the group that was already operating.
The VTA wants a review of the entire sector to ensure there was a level playing field for all operators.
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