Prince Harry and Meghan Markle have struck a deal with the royal family which will see them keep their HRH titles but not use them.
They will also keep Frogmore Cottage, but will pay back Sovereign Grant money used to upgrade the property.
Harry and Meghan will spend more of their time in North America and will not carry out duties from the Spring.
Prince Charles will continue to pay the couple money from the Duchy of Cornwall, although it is not clear how much they will receive.
The Prince and his wife will be free to seek employment, but have pledged to uphold the values of the Queen in any commercial ventures.
"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," The Queen wrote in a statement released at 6.30pm on Saturday.
"Harry, Meghan and Archie will always be much loved members of my family.
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"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."
A statement from Buckingham Palace added: "The Duke and Duchess of Sussex are grateful to Her Majesty and the Royal Family for their ongoing support as they embark on the next chapter of their lives.
"As agreed in this new arrangement, they understand that they are required to step back from their Royal duties, including official military appointments.
"They will no longer receive funding for Royal duties.
"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 announcement comes a week after the couple expressed their intentions to step back from their senior roles in the Royal Family and work to become "financially independent".
"This geographic balance will enable us to raise our son with an appreciation for the royal tradition into which he was born, while also providing our family with the space to focus on the next chapter, including the launch of our new charitable entity," the royal couple said in their official statement last week.
“We look forward to sharing the full details of this exciting next step in due course, as we continue to collaborate with Her Majesty The Queen, The Prince of Wales, The Duke of Cambridge and all relevant parties.”
At the end of last week Meghan flew out to Vancouver in Canada to be with her son Archie.
Harry stayed behind in the UK to discuss their future with senior royal family members.
He joined The Queen, Prince Charles and Prince William for the talks at Sandringham.