Coordinator Lezak Shallat of Chile's Free Tobacco organization, said smoking costs the country $2.5 billion in health expenses, The Santiago Times reported.
"Chile has the highest smoking rates in the Americas and among young ages it has the highest smoking rates in the world," Shallat said.
Business unions in the country opposed the smoking ban.
President Fernando de la Fuente of the Chilean Association of Gastronomy told a news conference the legislation will hit local businesses the hardest.
He noted that 40 percent of venues in the Santiago metro area don't have outdoor terraces and will have to ban smoking in their establishments. Sales are expected to drop as a result, de la Fuente said.
The smoking ban makes Chile the eighth country in South American to approve tobacco control laws.