A consultation has been launched on proposals ministers believe will help them thwart gangsters intent on using the taxis as a front for money laundering, drug dealing and other serious criminal activities.
However, experts have warned the Scottish Government to "proceed with caution" amid concerns of legal challenges.
The moves, designed to improve the standard of the trade, include allowing councils to restrict the number of private hire cars and to require testing of their drivers in knowledge of the area.
One key proposal is to shift the onus to those applying for a licence to prove they are fit and proper, with character references and CVs. Currently, applicants are usually only refused if the police object or raise issues.
Licensing standards officers could be introduced, along with a requirement for small firms with fewer than four cars and new conditions for the drivers, vehicles and booking offices.
Justice Secretary Kenny MacAskill has vowed to flush gangsters out of the industry, introducing legislation on radio bases licensing which has seen several firms close. He set up an accreditation scheme to ensure reputable firms won contracts.
Police recently estimated at least 15 firms are controlled by organised crime, with some firms in Glasgow, Edinburgh, Dundee and beyond infiltrated by underworld figures.
Strathclyde Police spent years pursuing Glasgow's Network Private Hire, which it had branded a front for organised crime. It withdrew formal concerns after a figure known to police left.
Mr MacAskill said: "The taxi and private hire sectors are very important to the economy.
"It is essential they are regulated to the appropriate standards so the public is protected from harm while using the service and the industry is protected from infiltration by organised crime. Our views are not fixed and we are committed to an open and productive discussion on these proposals.
Bill McIntosh of the Scottish Taxi Federation said: "Passengers will want to know they are being served by responsible businesses, and firms and drivers also need more protection from rogue elements, and assurance that the licensing regime is consistent in its aims across Scotland."
Caroline Loudon, head of licensing at legal firm Lindsays, said most of the plan was positive. But she added: "I'm uncomfortable with applicants being required to prove they are 'fit and proper'. I'd want to see what tests and evidence applicants would require to meet and produce.
"Taxi and private hire licensing is looked at in a slightly different way from other civic licences because of the way the driver has 'contact' with the general public, in particular children and protected adults. That said, proceed with caution."