The Queen has singled out Meghan for praise as the future of the Duke and Duchess of Sussex was confirmed, saying she is "particularly proud" of how quickly the former actress has "become one of the family".
In a statement on Saturday, Buckingham Palace announced that the couple will no longer use their HRH titles, will no longer receive public funds and will repay money used to renaovate their UK home, Frogmore Cottage.
Sky News' royal commentator Alastair Bruce said the Queen had: "Brought down the iron fist of monarchical leadership on a problem that needed to be solved."
But in a separate statement the monarch unusually used the first names of her grandson Prince Harry, his wife and his young son Archie, saying they "will always be much loved members of my family".
"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 said.
"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."
The couple will be known as Harry, Duke of Sussex, and Meghan, Duchess of Sussex.
What will Harry and Meghan lose?
They will no longer use their Royal Highness titles
They will no longer represent the Queen in carrying out royal duties or tours
Harry will step down from his military appointments
They will no longer be part of the ceremonial part of the Royal Family
They will repay the £2.4m of public money used to renovate their home in the UK, Frogmore Cottage
They will no longer receive public money
The Queen and Meghan have previously appeared to have had a good relationship when appearing in public together.
They shared a giggle as they opened the Mersey Gateway bridge in their first official engagement in June 2018.
Meghan appeared at ease with the Queen as they sat together during the ceremony and appeared to share a joke, with the duchess giggling heartily in response to her grandmother-in-law's comments.
In her statement the Queen added: "I want to thank them (the Sussexes) 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 couple will repay £2.4m of taxpayers' money spent on renovating their Berkshire home - Frogmore Cottage - as they divide their time between Canada and the UK.
Harry and Meghan had wanted to remain as working royals, although not prominent members, and become financially independent - a dual role many commentators said was fraught with problems.
The Queen had previously said she was "entirely supportive" of the couple's "desire to create a new life as a young family" following talks on their future at Sandringham earlier this week.
She added: "Although we would have preferred them to remain full-time working members of the Royal Family, we respect and understand their wish to live a more independent life as a family while remaining a valued part of my family."
Sky's royal correspondent Rhiannon Mills said: "In essence what we have this evening is a deal between the Sussexes and the rest of the family as to how exactly they can now start what they wanted which is this independent life.
"There are still clearly many details that need to be worked through but certainly this is beginning to give us a little more clarity."
Royal commentator Alastair Bruce said: "This is a seismic announcement from the Queen.
"This is an abdication in a sense from the Royal Family for Harry and he and his wife are now free, to a certain extent, to go and follow the dreams that they have."
The Sussexes website has been updated with the following: "In line with the statement by Her Majesty the Queen, information on the roles and work of the Duke and Duchess of Sussex will be updated on this website in due course.
"We appreciate your patience and invite you to explore the site to see the current works of Their Royal Highnesses."