According to the 20-year-old policy, Cuban immigrants who reach US soil to become legal permanent residents after a year.
In exchange, Havana has agreed to start accepting Cubans who are turned away or deported from the United States.
Many Cubans in the US say Washington is rewarding a regime which has failed to address human rights concerns.
However President Barack Obama says he is trying to continue the thawing of relations with Cuba: “With this change we will continue to welcome Cubans as we welcome immigrants from other nations, consistent with our laws.”
In a statement on state TV, the Cuban government praised the move as “an important step in advancing relations” between the US and Cuba.
It is unclear where relations between the two countries will go now.
Barack Obama’s successor, President-elect Donald Trump, has taken a much tougher stance and could reverse the change.
Until now, the so-called “wet foot, dry foot” policy has applied solely to Cubans, tens of thousands of whom reached US soil in 2016, including by land.
Thousands of other Cubans are intercepted at sea every year by the US coast guard before they can get a dry foot on land.
Immigrants from other countries who come to the US without a visa could be arrested and deported.
Florida Sen. Bill Nelson said: “I believe changing this outdated policy – in order to be fair to all and also to prevent people from abusing the system – is the right thing to do.”
However, Miami Mayor Tomas Regalado, a Cuban exile, blasted President Obama for giving Raul Castro a parting gift: “This is just a going-away present from Obama to Raul Castro.”
Tomas Regalado does not believe ending the policy will slow the flow of Cubans coming to the US.
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