South African officials will inspect workplaces to see if firms are employing undocumented foreigners, the home affairs minister says.
Malusi Gigaba added that more than 60 employees of retail chain Spar "without documentation" had been arrested.
Mr Gigaba warned that firms would be "penalised" if they breached the law, and said they should not fuel tensions by "playing locals against foreigners".
His comments come amid concern that xenophobia is rising in South Africa.
Many unemployed South Africans accuse foreigners of taking their jobs.
In the past week, Nigerian nationals have been attacked in the capital Pretoria; on Monday, 34 foreign-owned shops were looted in parts of Pretoria, and a local group has called for a march for Friday to protest at immigrants it says are taking their jobs.
The attacks triggered condemnation by the Nigerian government and a call by MPs for Nigeria's ambassador to South Africa to be recalled.
But South Africa's foreign affairs department dismissed claims that Nigerian nationals were targets of xenophobic violence.
Spokesperson Clayson Monyela said the attacks were nothing more than sporadic criminal incidents. The government also said inflammatory social media statements by South Africans and foreign nationals against each other were unnecessary.
However, Thursday saw protesters in the Nigerian capital, Abuja, target the head office of South African telecoms company MTN in apparent retaliation for violence against Nigerians in South Africa.
Mr Gigaba, whose comments have been published on the government's Twitter account, said South Africans should not be portrayed as "mere xenophobes".
He added that 33,339 people had been deported in 2015-16.
Government under pressure: Pumza Fihlani, BBC News, Johannesburg
South Africa's Home Affairs Department is getting tough on business - but will it work? The sense in some circles is it'll be all talk and no action - purely because they aren't enough people to carry out the job. The country is among the top 10 picks in the world for migrants looking for safety or a fresh start, according to the office of the president.
In the spirit of "Ubuntu"- humanity - South Africa has been hard-pressed to turn away its neighbours when they came knocking in their millions over the years. So what's the problem? Businesses have been accused of taking advantage of the situation by hiring illegal immigrants as cheap labour to avoid complying with government policy of fair pay.
This is partly where the "foreigners are taking our jobs sentiment" touted at the moment comes from. But the government can't afford to not act - those frustrated with the challenges presented by the country's porous borders are taking to violence to get their voices heard and making like difficult for foreigners living in their communities.
Still, the current trend of migration is placing additional pressure on the already struggling economy and something has got to give. While some are calling for stricter laws altogether, a more immediate response could be a more careful vetting of who is in the country and why. Are they actual asylum seekers or economic migrants - with the latter more likely to get caught in the eye of the storm.
In his budget speech on Wednesday, South African Finance Minister Pravin Gordhan said that 35% of the labour force was unemployed or had given up looking for work.
South Africa experienced its worst outbreak of violence against foreigners in 2008, when more than 60 people died.
Two years ago, similar unrest in the cities of Johannesburg and Durban claimed seven lives as African immigrants were hunted down and attacked by gangs.