The KSA is the only country in the world that bans women from driving.
Until now, only men were allowed licences and women who drove in public risked being arrested and fined.
A ministerial body will be set up to give advice within 30 days
The royal order will be implemented by 24 June 2018.
Although the move was welcomed by the US state department, which called it "a great step in the right direction".
UN Secretary General Antonio Guterres.
"As far as I remember, Sharia scholars have said it was haram (forbidden) for women to drive. How come it has suddenly become halal (permissible)?" one critic tweeted.
By Frank Gardner From BBC
This decree is huge for Saudi Arabia. For decades now, Saudi women, many of whom are extremely well-educated and ambitious, have been waiting for their chance to participate fully in their country's economy.
For all this time families have had to stretch their budgets to the limit, as they have had to hire in imported chauffeurs from south and south-east Asia, house them, feed them and insure them.
An estimated 800,000 imported chauffeurs currently ferry Saudi women around. The reason it has taken so long is the long-standing opposition from religious conservatives, who have expressed views varying from "they are too stupid to drive" to "it will lead to intolerable mingling of the sexes".
Yet this decree is in line with a programme called Vision 2030, promoted by Saudi Crown Prince Mohammed Bin Salman, to modernise Saudi society and bring it more into line with the rest of the world.
Country Human Right People.
Rights groups in the kingdom have campaigned for years to allow women to drive, and some women have been imprisoned for defying the rule.
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