Its new guidance tells doctors to override patient confidentiality if patients will not hand in their driving licences voluntarily.
Doctors are expected to report these patients to the Driver and Vehicle Licensing Agency, it says.
GP leaders say many doctors will already do this.
The GMC said it was "hardening" its existing guidance amid complaints that many GPs are reluctant to report patients without consent.
GPs should act if the patient's driving may expose others to risk of death or serious harm.
GMC chief executive Niall Dickson said: "This is difficult territory - most patients will do the sensible thing but the truth is that a few will not and may not have the insight to realise that they are a risk to others behind the wheel of a car.
"A confidential medical service is a public good and trust is an essential part of the doctor-patient relationship. But confidentiality is not absolute and doctors can play an important part in keeping the wider public safe if a patient is not safe to drive.”
The Royal College of GPs said doctors already knew they had to take steps if a patient became a risk to others.
Chair Dr Maureen Baker said: “The unique relationship between GPs and their patients is one based on trust, and that works both ways, so where possible we try to leave the responsibility for reporting unfitness to drive in the hands of the patient. But we do follow up on recommendations we make, and in some cases - if a patient hasn't self-reported - we do take this step on their behalf.
“We are bound by the GMC to report a patient to the appropriate organisation, such as the DVLA if a patient is unfit to drive, when we know they pose a risk to themselves or to others.”
The Institute will be overseen by the Medical Research Council and will seek to bring together universities and other research organisations.
One university will be selected to host the institute - and universities will bid for the role next year.
The MRC said it would be appointing the institute director.
Chief executive Professor John Savill said: “Dementia research is an extremely high priority for the Medical Research Council.
"We will work with our partners, and in particular with patients and their families, to build a vision for the UK Dementia Research Institute based on excellence in discovery science.
“We want to attract world-class researchers with new and different perspectives so that we can make real progress in the race to discover the next wave of treatments for dementia.”
Yesterday ministers announced they were approving billions of pounds of extra cash for the NHS next year.
Although the money is expected to help the service deal with growing financial problems, Mr Osborne will tell MPs that it will also deliver some of the government's objectives.
This includes a "truly seven-day health service" together with access to GPs at evenings and weekends.
He will promise that half the population will have access to seven day coverage for "all key" hospital services by 2018 - reaching 100% by 2020.
In cash terms the NHS is to get £6 billion next year. Allowing for inflation this is expected to be worth £3.8 billion.
Some £4.8 billion a year in capital spending is to be allocated to the Department of Health, allowing investment in cancer diagnostics and new hospitals planned for Cambridge, Brighton and Sandwell.
The Royal College of GPs claimed that £3.8 billion was needed for general practice alone. It said 10,000 additional GPs would be needed across the UK to meet the government's objectives.
Chair Dr Maureen Baker said: “As the Five Year Forward View puts general practice at the very heart of the vision for the future of the NHS it is critical that a significant proportion of the new money is given to the family doctor service.
“Only through major new investment can we cut waiting times to see a GP, recruit and retain sufficient numbers of family doctors, and give doctors enough time to deliver the high quality patient care that they want to provide in the community."
Rob Webster, chief executive of the NHS Confederation, added: "It could give the NHS a fighting chance of transforming care in line with the Five Year Forward View, and longer term would provide the certainty that enables it to invest in new models of care.
“We are clear that significant risks remain. In particular, the NHS will fail to deliver good care without adequate social care provision and improvements in the public’s health.
"Local government budgets have been cut dramatically over the last five years and there is no doubting the knock-on impact this has on the NHS."
The government and its advisers have made elimination of "never events" a key objective in improving patient safety.
But the latest research suggests they are randomly distributed. The only factor that affected the number of events at a hospital was its size.
Researchers, reporting in the journal Anaesthesia, say that "never events" cause major harm about one operation in every 250,000. They occur without causing major harm in one in every 16,500 operations.
They say there was a small but insignificant reduction in events from 2011 to 2013.
The study. Led by Dr Iain Moppett, of Queen's Medical Centre, Nottingham, involved 158 hospital trusts. The researchers found that almost all the hospitals had the expected number of events over the three year period.
There was no link with other measures such as Care Quality Commission ratings or hospital mortality data.
They write: "Never Events are important, but as they are rare, apparently random events they are the wrong metric to gauge safety within the operating theatre."
Surgical caseload and the risk of surgical Never Events in England Anaesthesia 23 November 2015; doi: 10.1111/anae.13290 [abstract]