Harry and Meghan's groundbreaking decision came in a statement, and the couple said they will work to become financially independent, while continuing to "fully support" the Queen.
The couple's move follows weeks of speculation about their future after they took an extended break from royal duties over the festive period that followed an emotional appearance in a documentary.
In the ITV programme they spoke about the pressures they have been facing and family rifts, and in a separate move Harry issued a damning statement against the media accusing sections of the press of bullying his wife.
The couple said in their statement: "After many months of reflection and internal discussions, we have chosen to make a transition this year in starting to carve out a progressive new role within this institution.
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"We intend to step back as 'senior' members of the royal family and work to become financially independent, while continuing to fully support Her Majesty the Queen.
"It is with your encouragement, particularly over the last few years, that we feel prepared to make this adjustment.
"We now plan to balance our time between the United Kingdom and North America, continuing to honour our duty to the Queen, the Commonwealth, and our patronages.
"This geographic balance will enable us to raise our son with an appreciation for the royal tradition into which he was born, while also providing our family with the space to focus on the next chapter, including the launch of our new charitable entity."