In a joint statement the Duke of Cambridge and Prince Harry said yesterday: "It has been twenty years since our mother's death and the time is right to recognise her positive impact in the UK and around the world with a permanent statue.
"Our mother touched so many lives. We hope the statue will help all those who visit Kensington Palace to reflect on her life and her legacy."
Debate as to how Diana, Princess of Wales, should be remembered began almost immediately after her funeral at Westminster Abbey, an event watched by millions around the world.
Despite the years that have passed since her death at the age of 36, William and Harry feel that there is still no fitting memorial to her.
The Diana Memorial Fountain in Hyde Park was beset by problems when it opened in 2004 and there was controversy over both its £3.6 million cost and what some regarded as its less than majestic design.
The Princess's grave is on an island at her family seat, Althorp, in Northamptonshire, where it cannot be accessed by the public.
The only statue of the Princess to date - a depiction of her with her boyfriend Dodi Fayed releasing an albatross, commissioned by Mohamed Fayed and standing next to an escalator in Harrods - was regarded by many as being in bad taste and poorly executed.
Princess Diana. Photo / Getty Images
Now the Duke of Cambridge, 34, and Prince Harry, 32, who had little say in the building of the fountain or the siting of her grave, have decided to take matters into their own hands.
They have turned to their closest friend and advisors to help them, convening a committee which includes the Princess's oldest sister, Lady Sarah McCorquodale, to appoint a sculptor and raise private funds to pay for it.
The Princes hope the statue will be ready in time to be unveiled before the end of this year. It will be the centrepiece of the 20th anniversary commemorations of her death.
As well as Lady Sarah, they have asked five other friends and contacts to sit on the committee that will find a sculptor and raise the funds.
They are ex-SAS officer Jamie Lowther-Pinkerton, the Princes' former private secretary and godfather to Prince George; John Barnes, chief executive of Historic Royal Palaces; Gerry Farrell, an art gallery owner and a friend of Diana, who will bring artistic expertise; Guy Monson, a City fund manager and trustee of both the Invictus Games and the Royal Foundation charity, and Julia Samuel, one of the Princess's closest friends and a godmother of Prince George.
A royal source said: "This is very much their way of commemorating their mother.
"It's not really a reflection on anything that has gone before, it's just that they feel that now they are ready to do this."
On the tenth anniversary of the Princess's death, the princes held a fund-raising pop concert. Royal sources said there would be no concert this year, and while there would be "other chances to acknowledge the anniversary" the statue will be the "main event" of the commemorations.
Diana Frances Spencer. Photo / Getty Images
Earlier this month the Duke and Duchess of Cambridge announced that they will be moving their family home from Anmer Hall in Norfolk to Kensington Palace to enable them to carry out full-time royal duties.
It means that Prince George and Princess Charlotte will grow up with a reminder of the grandmother they never met sited in the grounds of their family home.
One of those likely to be a front-runner for the commission is the sculptor Philip Jackson, who made the bronze statue of Queen Elizabeth the Queen Mother that was the last major statue commissioned by the Royal family.
He also made a statue of King George VI which stands at the Britannia Royal Naval College in Dartmouth; the Bomber Command Memorial in Green Park, London and the statue of Bobby Moore at Wembley Stadium.