Prince Harry and Meghan will no longer use their HRH titles and will not receive public funds for royal duties, Buckingham Palace has said.
The couple will also no longer formally represent The Queen.
The Duke and Duchess of Sussex also said they intend to repay £2.4m of taxpayer money for the refurbishment of Frogmore Cottage, which will remain their UK family home.
The new arrangement comes into effect in spring this year, the Palace said.
It comes after the couple earlier this month said they wanted to step back as senior royals.
A statement from the Queen said following “many months of conversations and more recent discussions” she was “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,” the statement continued.
“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.
“It is my whole family’s hope that today’s agreement allows them to start building a happy and peaceful new life.”
Buckingham Palace said the royal couple understood they were required to step back from royal duties, including official military appointments.
“They will no longer receive public funds for royal duties,” the statement said.
“With the Queen’s blessing, the Sussexes will continue to maintain their private patronages and associations.
“While they can no longer formally represent the Queen, the Sussexes have made clear that everything they do will continue to uphold the values of Her Majesty.
“The Sussexes will not use their HRH titles as they are no longer working members of the Royal Family.”
The palace said it would not comment on what security arrangements would be in place for the royal couple.