The airline, which has been hit by a series of strikes, said all employees involved in the action would be locked out from Monday evening without pay and flights grounded from 0600 GMT Saturday.
"We have decided to ground the Qantas international and domestic fleets immediately," chief executive Alan Joyce said.
The airline said pilots, engineers and baggage, ground and catering staff were essential to Qantas operations and their lockout made it necessary to ground all planes.
"Aircraft currently in the air will complete the sectors they are operating. However, there will be no further Qantas domestic departures or international departures anywhere in the world," it said.
The government said it was "very concerned" by the dramatic development and would seek urgent action from the industrial regulator.
"In the light of Qantas' announcement today regarding the grounding of its fleet, the government is making an urgent application to Fair Work Australia... to terminate all industrial action at Qantas," Transport Minister Anthony Albanese said.
Canberra can intervene in industrial disputes if the Australian economy or the welfare of its population is deemed to to be under threat.
Months of strikes by baggage handlers, engineers and pilots were costing Qantas Aus$15 million (US$16 million) per week, the airline said, with the total financial impact so far hitting Aus$68 million.
Approximately 70,000 passengers had been affected ahead of the announcement and more than 600 flights cancelled.
The embattled company's shock decision to ground all aircraft will affect 108 planes at 22 airports, it added.
"The airline will be grounded as long as it takes to reach a conclusion on this," said Joyce in a hastily called press conference, adding that he could not take "the easy way out" and agree to union demands.
"That would destroy Qantas in the long term," he said.
"I'm actually taking the bold decision, an unbelievable decision, a very hard decision, to ground this airline."
Unions have been protesting against pay and restructuring plans and the decision to ground the planes came a day after a fiery annual general meeting.
At the AGM, Qantas management came under fire for plans to refocus the airline on Asia which will see it launch two new airlines and axe 1,000 jobs.
Joyce was accused of running the carrier into the ground while reaping massive personal rewards.
Engineering union chief Steve Purvinas had warned that protests could stretch until mid-2012 while ground staff leader Tony Sheldon threatened crippling 48-hour strikes.
Joyce Saturday blasted the unions for running "utterly destructive industrial campaigns against Qantas and our customers, hurting all our employees and undermining Australian business".
"They are trashing our strategy and our brand," he said, adding that company research showed an alarming increase in people who intend not to fly with Qantas.
"They (the union) talk about job security, but the unions are on a path that would diminish the job security of their own members," said Joyce.
"Customers are now fleeing from us."
The airline will offer hotel accommodation and alternative flights to those who are mid-journey and cannot get home because of the grounding.
And there will be refunds and ticket transfers available to passengers whose flights are cancelled, while Virgin Australia announced it was looking at putting on additional services