Anyone living in Lombardy and 14 other central and northern provinces will need special permission to travel. Milan and Venice are both affected.
Prime Minister Giuseppe Conte also announced the closure of schools, gyms, museums, nightclubs and other venues across the whole country.
The measures, the most radical taken outside China, will last until 3 April.
Italy has seen the largest number of coronavirus infections in Europe, with the number of confirmed cases jumping by more than 1,200 to 5,883 on Saturday.
The strict new quarantine measures affect a quarter of the Italian population and centre on the rich northern part of the country that powers its economy.
The death toll in Italy has passed 230, with officials reporting more than 36 deaths in 24 hours.