Critics have taken issue with the Chancellor's definition, which equates to the highest employment rate in the G7 group of nations.
The UK currently ranks fourth in league tables compiled by the Organisation for Economic Co-operation and Development, behind Canada, France and Germany.
The Conservatives said that reaching that target would create one million new jobs across the UK.
However, economists have traditionally defined full employment as the maximum number of people in jobs without triggering high inflation.
Mr Osborne's announcement will be seen as an attempt to move on to turf more normally associated with the Labour party.
Labour's shadow chief treasury secretary Chris Leslie said the Government's economic strategy had left hundreds of thousands of young people on the dole.
"Full employment is the right aspiration but George Osborne has announced no new policies today to help people into work," he said .
"While he has been Chancellor, the number of young people stuck on the dole for more than 12 months has almost doubled and the number of people who want to work full-time but have had to take part-time jobs is at record levels."
Outlining his plans in a major speech in Essex, Mr Osborne said that full employment would be a "central goal" of his economic plans.