In a separate statement, Buckingham Palace announced the couple would no longer use their royal titles and would not receive public money for royal duties.
The couple will no longer represent the royal family on official duties including military duties and "wish" to repay the $4.5 million of taxpayer money they used to refurbish Frogmore Cottage. However the property will remain their home while in the UK.
The new model will take effect in the northern spring 2020.
It's only been a couple of hours since the royals announced the details of the colloquially named "Megxit" but the world is already reacting.
At 8.30am AEST "Meghan" and "Royal Family" were the top trends on Twitter.
Newspaper front pages are yet to come, with the royals announcing the details just before 8pm Saturday night local time.
The BBC's royal correspondent Jonny Dymond said it was "harder to think of a much cleaner break".
"The early talk was of a much more mixed life — one where perhaps Harry and Meghan continued with some royal duties, dividing their time equally between the UK and Canada," Mr Dymond said.
"But the contradictions and conflicts of interest were too many. There are still lots of details to thrash out and the whole thing will be reviewed after a year.
"But a new life awaits Harry and Meghan — celebrities, certainly, but a different kind of royalty."
Sky News'royal commentator Alastair Bruce said despite the statement seeming warm, the Queen had "brought down the iron fist".
"This was turning into an enormous distraction and this is a seismic announcement from the Queen," he said.
"It's still very warm on the pastoral side of affection from a grandmother to her grandson and her great-grandson and granddaughter-in-law, but at the same time she has brought down the iron fist of monarchical leadership on a problem that needed to be solved."
Others are taking to social media to comment — some expressing a sigh of relief for the couple.
Others, including Piers Morgan, the loudest critic of Meghan Markle, were less kind.
