Prince Harry and Meghan will no longer use their HRH titles and will not receive public funds for royal duties, Buckingham Palace has announced.
The couple will also no longer formally represent the Queen.
The Duke and Duchess of Sussex intend to repay £2.4m of taxpayer money for the refurbishment of Frogmore Cottage, which will remain their UK family home, the statement added.
The new arrangement comes into effect in spring this year, the palace said.
The statement comes after the Queen held talks with the couple on Monday about their future, following their announcement that they wanted to “step back” as senior royals and divide their time between the UK and Canada.
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.
She thanked them for their “dedicated work”, adding that she was “particularly proud of how Meghan has so quickly become one of the family.”
On Sunday, the Queen made her first public appearance since the announcement, arriving at church with the Duke of York.
In a separate statement, Buckingham Palace said: “The Sussexes will not use their HRH titles as they are no longer working members of the Royal Family.”
HRH, an abbreviation of His/Her Royal Highness, is used as part of the title of some members of the royal family.
BBC royal correspondent Daniela Relph told BBC Radio 5 Live: “When they first issued that statement about what they wanted, they talked about forging this progressive role within the Royal Family, about stepping back from royal duties. This isn’t stepping back, it’s stepping away entirely.”
She said the question that will “hang over them” for the next year is what their commercial life will look like. “This will be a test of the integrity of Harry and Meghan,” she said.
As well as repaying the cost of refurbishing Frogmore Cottage, the couple will pay a “commercial rent” for the property.
Buckingham Palace said the duke and duchess understood they were required to withdraw from royal duties, including official military appointments.
“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,” it said.
The statement added that the pair would continue to maintain their private patronages and associations. The Rugby Football League said it was “delighted” to continue to have the duke as patron, praising his “genuine commitment”.
Map Ives, director and founder of Rhino Conservation Botswana, said he had already been told by an official in Harry’s office that the duke “wants to continue” his patronage of the organisation.
“If anything our relationship should get stronger,” Mr Ives said. There has been much speculation on who will provide security arrangements for the couple and how much it will cost, but the palace said it would not comment on such matters.