There are an estimated 2,500 transgender servants in a force numbering 1.3 million people .
The Pentagon has lifted its ban on transgender service members serving openly in the U.S armed forces, meaning that members can transition between genders while serving.
The policy, which will be phased in over a year, will set specific standards for medical care and will allow transgender individuals to enlist, provided they have been 'stable' in their identified gender for 18 months.
US officials have also said that the new rules will give military commanders flexibility due to the fact that not all cases are the same.
It will also aim to eliminate discrimination and ensure no-one can be discharged or denied re-enlistment based on gender identity.
Currently, there are 2,500 transgender people serving in the forces out of a total of 1.3 million people, according to Defense Secretary Ash Carter. Military forces in the UK, Israel and Australia already have policies in place which allow transgender members to serve openly.
Speaking about the development at a news conference today, Carter said: "This is the right thing to do for our people and for the force. Our mission is to defend this country. And we don't want barriers unrelated to a person's qualification to serve preventing us from recruiting or retaining the soldier, sailor, airman, or Marine who can best accomplish the mission.''
He added that the policy was "a matter of principle" and said he had consulted transgender service members over the years to negotiate how best to meet their needs.
Senior military leaders had sought more time to fully develop and implement the new rules, arguing that the department was moving too fast, according to the Associated Press.
The move ends one of the last remaining bans on military service.