They include immigrants living in the US for five years who have children staying legally in the US.
Up to five million are expected to benefit from a reform package forced through using executive orders, which allow President Barack Obama to bypass Congress.
Republicans have accused the president of an “illegal power-grab”.
There are estimated to be 11 million illegal immigrants in the US.
Under Barack Obama’s plan, undocumented parents of children who are US citizens or legal residents will be able to apply for work permits lasting three years.
Only parents who have lived in the US for five years will qualify – about four million people are estimated to fit this criterion.
Hundreds of thousands more will benefit from other changes, including a decision to broaden a scheme giving temporary legal status to those who arrived in the US as children.
“Come out of the shadows and get right with the law,” Barack Obama said.
He insisted his proposals, which are the biggest immigration reforms since the mid-1980s, did not amount to an amnesty.
“What I’m describing is accountability – a common-sense, middle ground approach,” he said.
Although the plan will allow millions to work, it will not offer a path to citizenship or entitle them to the same benefits as Americans, Barack Obama said.
“If you’re a criminal, you’ll be deported. If you plan to enter the US illegally, your chances of getting caught and sent back just went up,” he said.
Republicans reacted with fury and said the move would “poison the well” on a number of other issues.
Arizona Republican Senator John McCain called it an “illegal power-grab” that “fails to address the root causes of the dysfunction in our immigration system”.
Texas Governor Rick Perry, who leads a border state, argued the move would “lead to more illegal immigration, not less”.
Barack Obama’s plan does not go as far as a bill that would have provided a path to citizenship for millions of undocumented immigrants.
The bill was passed by the Democrat-led Senate, but the Republican-controlled House of Representatives refused even to debate the proposal.
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