Mr Osborne said lives could be lost if hackers gained control of the nation`s electricity supply, air traffic control systems or hospitals.
Armed police are to be deployed at a football match between England and France at Wembley Stadium later.
Mr Osborne`s speech comes after IS said it was behind Friday`s attacks in which 129 people were killed in bars, restaurants, a concert hall and a stadium in Paris. The victims included Briton Nick Alexander from Essex.
""Mr Osborne - who will visit the GCHQ listening station in Cheltenham later - will say IS has already proved its ability to exploit the internet "for hideous propaganda purposes", including for radicalisation and operational planning.
But the chancellor will warn that IS is also seeking to hack key UK infrastructure in a bid to kill people.
High stakes
"From our banks to our cars, our military to our schools, whatever is online is also a target," Mr Osborne will say.
"The stakes could hardly be higher.
"If our electricity supply, or our air traffic control, or our hospitals were successfully attacked online, the impact could be measured not just in terms of economic damage but of lives lost."
He will add: "They do not yet have that capability. But we know they want it, and are doing their best to build it."
Mr Osborne will announce the creation of a new National Cyber Centre to bring together the country`s leading experts.
Other planks of the strategy will include an Institute For Coding, increased investment in the National Cyber Crime Unit, and apprenticeships for cyber-security specialists.
BBC security correspondent Frank Gardner said much of what the chancellor planned to announce was not new, but it was clear that the government wanted the public to know it had decided to make cybersecurity a top priority.
Speaking at the Lord Mayor of London`s Banquet on Monday night, Mr Cameron said the UK must now show the same resolve it displayed against Adolf Hitler during the Blitz in order to defeat the threat of terrorism.
The prime minister said rising defence budgets - guaranteed by the government`s commitment to spend 2% of GDP on the military - would mean "more money" for priorities such as unmanned drones, fighter aircraft and cyber-defences, he added.
"You do not protect people by sitting around and wishing for another world. You have to act in this one. And that means being prepared to use military force where necessary," Mr Cameron said.
Meanwhile, the Met said supporters would see an enhanced police presence at Tuesday`s football match between England and France at Wembley Stadium.
The Duke of Cambridge and London Mayor Boris Johnson are expected to be among the crowd.
More about:
