Prince Harry and Meghan Markle, who had announced their decision to step back from their royal duties, will not use the "royal highness" titles as well as would no longer receive public funds for royal duties.
"The Sussexes will not use their HRH titles as they are no longer working members of the Royal Family. The Duke and Duchess of Sussex have shared their wish to repay Sovereign Grant expenditure for the refurbishment of Frogmore Cottage, which will remain their UK family home," a statement from the Buckingham Palace read.
"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 Royal duties, including official military appointments. They will no longer receive public funds for Royal duties," read the statement.
It stressed that 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".
This new model will take effect in the Spring of 2020, the statement informed.
The Queen said she was pleased that "together we have found a constructive and supportive way forward for my grandson and his family" following many months of conversations and more recent discussions.
"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," she said in a statement.
"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 said.
Earlier, Prince Harry and Meghan had announced that they will "step back as 'senior' members of the royal family" and are planning to work towards becoming "financially independent".
( With inputs from ANI )