They have become the first country to make public transport entirely free throughout the country.
Most people working in the city commute from the neigbouring countries and are set to benefit from the free public transport system.
Travel of up to two hours now costs €2 (NZ$3.30), while an all-day pass costs €4.
European Union's wealthiest country, Luxembourg's Prime Minister Xavier Bettel has made history after announcing his plans to make public transport free in 2020.
Bettel's Democratic Party is ruling in coalition with the left-wing Socialist Workers' Party and the Greens.
The move will also save on the collection and processing of fares and the policing of ticket purchases.
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He'd obtained the documents after compelling the founder of USA software company Six4Three to hand them over during a business trip to London .
A study suggested drivers in the capital spent an average of 33 hours in traffic jams in 2016.
Some places around the world offer free transport in a bid to reduce traffic congestion, and in some U.S. counties the bus system is free, but no other nation has eliminated fares from its entire transport network.
Around 200,000 others cross the border to Germany, France and Belgium daily.
The national transport system now costs around €1billion to operate, yet fares only amount to €30million annually, The Independent reports.
The government, however, has yet to divulge their plans for the first- and second-class compartments on trains.
The new administration is also considering introducing two new public holidays and legalising cannabis - the latter policy has caused much debate in the country.