Smoking in taxis is prohibited.
However, in the "real world" drivers did not always abide by the law, United Taxis manager Ross Overton said.
United Taxis recently launched a smoke-free policy, warning drivers not to smoke in taxis, near the vehicle, or on the firm's premises.
Those caught would be fined $50 the first time and $100 the second time.
A third breach would result in termination of their contract.
Money from fines would be donated to the Cancer Society.
The company would pay for quitting aids such as nicotine replacement, and provide other support, such as allowing drivers to call Quitline during work hours.
Mr Overton, a reformed "chain smoker", said he was not driven by the zeal of the ex-smoker.
However, he was concerned for his drivers' health, and, also, smoking was becoming more and more unacceptable.
Customers had complained about the smell of smoke in taxis, and sometimes requested a non-smoking driver.
About a quarter of the firm's drivers smoked.
Driver Neil Aitchison (32) who smokes 10 cigarettes a day, said the policy was a real impetus to quit.
He had already cut down, and his wife quitting three years ago was an added motivation to stop.
New University of Otago research suggests smokers are more than twice as likely to have symptoms of depression.
Lead researcher Prof David Fergusson said the findings suggested a cause-and-effect relationship.
The evidence pointed to smoking as a risk factor for developing depression, rather than depressed people being more likely to smoke.
The study, by researchers from the Christchurch Health and Development Study, was published last week in the British Journal of Psychiatry.
