The federal government's Future Fund will offload $222 million worth of tobacco company investments because of the "damaging health effects" to tabacco products.
Chairman David Gonski announced the decision on Thursday, following a review which began last year.
"The board noted tobacco's very particular characteristics, including its damaging health effects, addictive properties and that there is no safe level of consumption," he said in a statement.
As of December 31, the fund had investments in 14 companies worth $222 million.
The Future Fund was established in 2006 to provide for unfunded Commonwealth superannuation liabilities for public servants and defence personnel.
It has about $82 billion in assets.