The decree comes less than two years after Saudi women were first allowed to vote, in municipal elections.
According to the BBC, government ministries are to prepare reports within 30 days and the order will be implemented by June 2018.
The ultraconservative US ally is the only country in the world to forbid women from driving, under threat of arrest, fines and detainment.
Saudi Arabia is an absolute monarchy ruled according to Sharia law.
"The royal decree will implement the provisions of traffic regulations, including the issuance of driving licences for men and women alike," the Saudi Press Agency (SPA) said.
The Saudi US ambassador, Prince Khaled bin Salman, said women would not have to get permission from their male guardians to take driving lessons, and would be able to drive anywhere they liked.
This is despite Saudi 'guardianship' laws that give men power over their female relatives, potentially limiting their travel, work or right to medical procedures.
According to the New York Times, Saudi leaders also hope the new policy will help the economy by increasing women’s participation in the workplace.
Many working Saudi women spend much of their salaries on drivers or must be driven to work by male relatives.
It also shows the damage the driving ban has done to the kingdom’s international reputation.
Yet even if the true reasons the patriarchy have lifted the ban is for economic growth and better PR, Saudi women are finally getting a right to this basic freedom.
The Times spoke to Fawziah al-Bakr, a Saudi university professor who was among 47 women who participated in the kingdom’s first protest against the ban — in 1990. After driving around the Saudi capital, Riyadh, the women were arrested.
“Since that day, Saudi women have been asking for the right to drive, and finally it arrived,” she said by phone. “We have been waiting for a very long time.”
The new has also driven the #Women2Drive trending hashtag on Twitter.