The Government said the idea would help reunite owners with lost or stolen pets as well as improving the welfare of dogs.
Ministers also announced plans to extend legal protection over dog attacks to cover incidents on private property.
The change will be a boost for postmen and women, health visitors and others who call at private addresses but have not been covered by the law if they are bitten by a dog.
Environment Secretary Owen Paterson said: “It’s ludicrous that in a nation of dog lovers, thousands of dogs are roaming the streets or stuck in kennels because the owner cannot be tracked down.”
Around 110,000 stray dogs are picked up by police, local authorities and animal welfare charities each year, with around half unable to be reunited with their owner because they cannot be identified.
Around 6,000 dogs are put down each year, while strays cost the taxpayer and welfare charities £57m a year.
Thousands of postal workers and hundreds of telecoms engineers are attacked by dogs every year, mainly on private property such as gardens, drives and private roads.
David Bowles, head of public affairs, at the RSPCA said: “Compulsory microchipping and extending the law to cover private property as well as public spaces is a welcome move. ”
Billy Hayes, general secretary of the Communication Workers Union said: “Compulsory microchipping will help to link dogs with their owners, assisting dog attack victims in identifying owners as well as helping to reunite responsible owners with their pets.”