Saudi Arabia, where public sports events for women are banned, will allow females to compete in the Olympic Games for the first time, its embassy in London said in a landmark statement.
The Saudi Olympic Committee will "oversee participation of women athletes who can qualify", the BBC quoted the statement as saying.
The issue of women in sport remains extremely sensitive in the ultra-conservative Muslim state, where women are not even allowed to drive cars and the authorities shut down private gyms for women in 2009 and 2010.
Equestrian contestant Dalma Malhas is likely to be the country's only female athlete to qualify for this summer's Games in London which get underway on July 27.
Malhas, born in the United States, won a bronze medal at the 2010 Singapore Youth Olympics without having been nominated by her country, following an invitation from the International Olympic Committee (IOC).
The BBC reported that Saudi's King Abdullah pushed for the policy change, but had delayed the announcement due to last week's death of heir-apparent Crown Prince Nayef.
"It's very sensitive," a senior Saudi official told the BBC. "King Abdullah is trying to initiate reform in a subtle way, by finding the right balance between going too fast or too slow.
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"Partly because of the mounting criticism we woke up and realised we had to deal with this. We believe Saudi society will accept this," the official said.
Saudi Arabia, Qatar and Brunei are the only three countries never to have sent women athletes to the Olympics.
But Qatar has already announced it will send a three-woman team to London made up of shooter Bahia Al-Hamad, swimmer Nada Wafa Arakji and Noor Al-Malki, a 100m and 200m sprinter.
Brunei, meanwhile, will send a woman to London as part of their two-athlete delegation -- 400m hurdler Maziah Mahusin.
Saudi Arabia's decision could provoke resistance in Malhas's homeland which operates under a strict Islamic code in which women are forced to cover themselves from head to toe.
Women wanting to take part in sports in the Gulf kingdom face an uphill struggle as they have to do so behind closed doors, like a group of 300 women who played basketball at an enclosed court in the city of Jeddah on the occasion of International Women's Day on March 8.
There had been increasing pressure on the Saudis to fall into line over sending a women's team to London with IOC president Jacques Rogge admitting in April that he was conducting a lengthy dialogue with the kingdom's rulers.