The measure also increases funding for the Consumer Product Safety Commission and partially bans plastic-softening chemicals called phthalates.
Under the new law, the CPSC's budget will rise from $80 million to $118 million from 2010 and grow to $136 million over the following five years.
Three types of phthalates have been permanently banned except for minute amounts, while three others have been temporarily banned pending further study.
Other features of the bill include whistle-blower protections and third-party testing requirements for certain children's products.
It also extends authority to the CPSC to inspect manufacturers' proprietary labs and increases maximum criminal penalties for violations.
White House Deputy Press Secretary Tony Fratto said in a statement: "This bill will help to ensure that products Americans find on their store shelves are safe and that the regulating agencies have the resources they need to enforce law."
"This bill patches up our current system by giving the CPSC the resources, regulatory authority and enforcement tools it needs to protect consumer from hazards posed by unsafe products," said Rachel Weintraub, federation director of product safety and senior counsel.
The bill comes after Mattel Inc, RC2 Corp faced recalls of Chinese-made toys from shelves in 2007, primarily due to excessive lead content in paint.