The Duke and Duchess of Sussex will step back from being working members of the Royal Family and will no longer use their HRH titles.
Prince Harry will also step down from his military appointments, including being Captain General Royal Marines, Honorary Air Commandant of RAF Honington and Commodore-in-Chief of Small Ships and Diving, Royal Naval Command.
Buckingham Palace issued a statement that outlines how Harry and Meghan will "no longer formally represent the Queen".
The "new model" for the Duke and Duchess' lives will come into effect from Spring 2020 and will be reviewed by Buckingham Palace in 12 months.
A statement released by the Palace said that the couple will also "repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage, which will remain their UK family home".
The announcement marks the conclusion of talks about the couple's future royal role, with senior members of the family and royal aides.
"As agreed in this new arrangement, they understand that they are required to step back from royal duties, including official military appointments," said a statement issued by the Palace.
"With the Queen’s blessing, the Sussexes will continue to maintain their private patronages and associations," the statement added.
This means Prince Harry's role with the Invictus Games is expected to continue.
The Queen also issued a statement saying she recognised the "challenges" they had faced over the past year.
"I want to thank them for all their dedicated work across this country, the Commonwealth and beyond, and am particularly proud of how Meghan has so quickly become one of the family.
"It is my whole family’s hope that today’s agreement allows them to start building a happy and peaceful new life."
The Queen’s statement included a personal tribute to the Sussexes with the Monarch unusually using the first names of her grandson and his family in a public message.
She said: “Following many months of conversations and more recent discussions, I am pleased that together we have found a constructive and supportive way forward for my grandson and his family.
“Harry, Meghan and Archie will always be much loved members of my family.
“I recognise the challenges they have experienced as a result of intense scrutiny over the last two years and support their wish for a more independent life.
“I want to thank them for all their dedicated work across this country, the Commonwealth and beyond, and am particularly proud of how Meghan has so quickly become one of the family.”
The Queen, who took control of the crisis which some royal watchers warned could threaten to permanently damage the monarchy, concluded by saying: “It is my whole family’s hope that today’s agreement allows them to start building a happy and peaceful new life.”
Harry and Meghan have already begun a transition phase of living in Canada and the UK.
The Duchess is in the Commonwealth country with their son Archie after the Sussexes spent six weeks in Canada over the festive period.
The move was agreed by the Queen, the Prince of Wales and the Duke of Cambridge following the Sussexes' unprecedented statement earlier this month saying that they wanted to step back as senior royals and become financially independent.
Royal accounts published last summer revealed £2.4 million of tax-payers’ money was spent on Meghan and Harry’s grade-II listed Frogmore Cottage home near Windsor Castle, turning five residences into a single home for the couple and their baby son, Archie.
But in a move that reveals the couple may have been trying to avoid a public backlash over the funds spent on their home, they have said they want to repay the amount.
The Queen has said Frogmore Cottage will remain their offical UK residence and when the couple are in the country they are likely to stay at the property and will pay a commercial rent on it.
The couple’s statement said they “will no longer receive public funds for Royal duties”, which was one of the requests of the Sussexes, who said on their new website they wanted to step away from public money so they could be financially independent.
Cover image: Prince Harry at the Rugby League World Cup draw earlier in the week (Picture: PA).