The 20-bed facility at Collingwood in Melbourne's inner north will close in mid-2027 as part of a redesign of Victoria's public intoxication services.
The cohealth-run site was a key plank of the state decriminalising public drunkenness in November 2023.
It will be replaced with local outreach options, which have supported about 110,000 people in the past two-and-a-half years, Premier Jacinta Allan said.
"We did look at the sobering-up centre as a model," she told reporters on Monday.
"Clearly the advice has come in that the outreach service is a more effective way of providing vital healthcare support to people where and when they need it."
In state budget estimates, Mental Health Minister Ingrid Stitt said there had been more than 3000 separate stays at sobering-up centres and places of safety.
Opposition Leader Jess Wilson said the coalition had been warning for years the Collingwood site was a waste of taxpayer money, with beds largely remaining empty.
"We can see that the 20 beds didn't work, it was overkill," she said.
"It's been in operation for three or four years, it hasn't delivered for the community and now it's closing down at the cost of the taxpayer."
The Victorian government committed to decriminalising public drunkenness at the start of an inquest into the 2017 death of Yorta Yorta woman Tanya Day.
Ms Day was arrested for being drunk in a public place and died after hitting her head in a concrete cell at Castlemaine Police Station.
In June 2024, a 34-year-old man was struck by a car and died at an intersection at Wyndham Vale after cohealth staff declined to take him to the Collingwood centre based on safety reasons.
In a statement, cohealth said it remained committed to delivering trauma-informed, human rights-based and health-led responses for people who used alcohol and other drugs.
While confident the changes would honour the intent of the reforms, Victorian Alcohol and Drug Association chief executive Chris Christoforou said it would be important to ensure decriminalisation of public intoxication guarantees a level of service to the wider community.
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