Playground dealers face instant expulsion from September, junior minister Ivan Lewis told a "drugs summit" at the Department for Education and Skills on Tuesday.
Ministers are also considering the introduction of a new offence of aggravated drug dealing for those who target children and peddle drugs at the school gates.
All new teachers are to be given training about drugs and inspectors will assess drugs education in secondaries.
But ministers are not proposing to force all schools to show the controversial video featuring Rachel Whitear, who died of a heroin overdose in May 2000. The video, which ends with shocking pictures of her corpse, will be available to schools who want it. Rachel's parents, Pauline and Mick Holcroft, have circulated it to schools in their home county of Herefordshire.
There are no plans to make the video available in Wales.