All unemployed young adults would be offered work, training or education after three months as part of a "90-day promise" made by Nick Clegg.
The Liberal Democrat leader unveiled the policy for the under-25s as part of a £1.1 billion package of measures announced in his keynote speech to delegates at the party's annual conference in Bournemouth.
A Lib Dem government would also introduce a new paid internship scheme to give people "real job experience" while receiving £55 a week, Mr Clegg said.
The measures would be paid for by scrapping the cut in VAT and would reduce unemployment and pay for 10,000 extra university places and 50,000 college places in one year.
Mr Clegg has dismayed many activists this week by warning his party that its pledge to scrap university tuition fees might be unaffordable. His latest announcement will be seen as an attempt to win back favour with students.
He told delegates the party would not "fail" young people who were "bearing too much of the burden of this recession". Many had racked up thousands of pounds of debts going through university "only to find there isn't a job, any job, at the other end."
He said: "Today we make a new promise to young people that they will not be unemployed for longer than 90 days before we find them work or training. Let me spell out what that would mean - if you lost your job today, we'd find you work, training, or a paid internship by Christmas.
"Right now, we would cancel Labour's VAT cut and use the money to invest in young people's futures. We would pay for 10,000 more university places and 50,000 more college places this year. And we would introduce a new 'Paid Internship' scheme to give people real job experience with an allowance of £55 a week.
"Young people would get experience that could make all the difference when it comes to looking for a job. We could pay for 800,000 placements for 800,000 young people. For the cost of just one weekend's VAT cut.
"If it's between 15p off a cinema ticket and a decent future. I know what we should choose."
