The Bhutanese government ordered shops, hotels, restaurants and bars selling tobacco products to dispose of existing stocks ahead of the ban.
The tobacco ban will not apply to foreign tourists, diplomats or those working for NGOs.
The predominantly Buddhist nation is thought to be the first country in the world to impose such a ban.
All smoking in public places has also been banned.
The moves are part of government efforts to make Bhutan a smoke-free nation.
"We want no pollution and good health for our citizens," said Bhutanese minister, Jigme Thinley.
Severe penalties
Eighteen of the kingdom's 20 districts had already banned the sale of tobacco products before the deadline.
The capital district of Thimphu and the eastern district of Samdrup Jongkhar are the last to impose the ban.
Bhutan's trade and industry ministry has warned of severe penalties if any person, group or firm is found selling tobacco.
Those who violate the ban will be fined $210 and owners of shops and hotels will lose their business licenses.
The government has decided to impose a 100% tax on all tobacco products brought into the country for personal consumption by Bhutanese.
Foreigners selling tobacco to locals will be severely punished, the authorities say.
"If any foreigner is caught selling tobacco products to Bhutanese nationals, he will be charged with smuggling. Tobacco will be treated as contraband," Karma Tshering of Bhutanese Customs told the BBC.
Correspondents say smoking was only popular with a small percentage of the Bhutanese population. Chewing tobacco was much more common.
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