The Malmsbury Youth Justice Centre will shut and detainees will transfer to Parkville and the new $420 million Cherry Creek facilities.
Minister for Youth Justice Enver Erdogan said Cherry Creek will open its doors and begin housing young people within weeks.
"It comes at an ideal time because our youth justice system is experiencing the lowest numbers in custody this century," Mr Erdogan said.
"As of yesterday, there are 100 young people in custody in Victoria."
Malmsbury has been operational since 1965 and has battled problems for years, with inmate riots, staff shortages and escapes.
By the end of the year there will be 56 people aged between 15 and 18 years of age at Cherry Creek and others moved to Parkville Correctional Centre.
Mr Erdogan said the new centre is purpose-built and features an intensive intervention community, a specialised primary health centre, and two mental health units.
It will accommodate young people in smaller units of four, so staff can provide more targeted and individual support in a safer environment – including modern security systems.
The opening of Cherry Creek follows a review into Victoria's youth justice system and includes additional training and responsibilities that support the delivery of psychosocial programs and case management for staff at Cherry Creek and Parkville.
Malmsbury staff were notified of the impending closure by email on Tuesday.
"We'll be working to maximise job transfers to rosters at the new site over the next six months and exploring other Department of Justice opportunities in Bendigo for those not wishing to continue in youth justice," a spokesman for the Victorian branch of the Community and Public Sector Union told AAP.
Youth Justice Commissioner Andrea Davidson, in a statement, thanked Malmsbury staff for their dedication and commitment to the young people in their care.
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