Police will also be given new powers to crackdown on illegal use of the unmanned aerial vehicles, the BBC reported today.
The government hopes to harness new drone technology which could see them used on oil rigs, in construction, for organ transport and parcel deliveries.
The bill has been welcomed by the pilots' union, which has warned of near misses involving drones and aircraft.
UK Aviation Minister Baroness Sugg said the government wanted to strike the right balance between harnessing drone potential and ensuring they are not misused.
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"But if we are to realise the full potential of this incredibly exciting technology, we have to take steps to stop illegal use of these devices and address safety and privacy concerns," she said in a statement.
This legislation is to ensure that drones can be used safely, while also addressing some of the safety and privacy concerns that people have, she said.
The British Airline Pilots' Association said there had been 81 incidents so far this year in the country - up from 71 in 2016 and 29 in 2015.
In July, a drone flew directly over the wing of a large passenger jet as it came into land at London's Gatwick Airport, which a report said had put 130 lives at risk.
The proposed bill - to be published in spring 2018 - would ensure that owners of drones weighing more than 250 grams would need to register and sit a test, the report said.
Owners would be banned from flying them near airports or at heights above 400ft.
Christian Struwe, head of European public policy at drone maker DJI, warned that some of the proposals may be "difficult to police" - for example the height restriction.
But he told BBC: "The good thing is that as an industry we are already working on it. We can limit how high they can fly."
Struwe pointed out that currently there is no "hard limit" on how close drones can fly to airports. "The current wording is that you should stay well clear," he said.
Aside from the Civil Aviation Authority's Drone Code, he said drone users should respect their neighbours' right to privacy and steer clear of sensitive areas, such as government buildings.
The government is also working with drone manufacturers on technology which produces virtual barriers, to stop the machines operating in restricted areas, the report said.