Legal processes for registering a change of gender are to be overhauled to make them less distressing for transgender people.
The move is part of a package of reforms unveiled by equalities minister Nicky Morgan which also included a cross-Government drive to remove unnecessary requests for gender information on official documents.
The review of the 2004 Gender Recognition Act comes after a parliamentary committee report in January which warned that Britain has "a long way to go" to ensure equality for transgender people.
One of the report's key recommendations was to shift the gender registration process away from "medicalised" questions to "self-declaration".
Morgan said it was recognised that some transgender people found it "distressing" to be asked to recount sometimes traumatic details of past surgery and felt they were treated as if they had a mental illness.
She said the review would also look at ways to improve NHS training and tackle harassment and bullying in higher education.
The Government also announced it will conduct a study to measure the size of the UK's transgender population.
Morgan said: "No-one should have to face discrimination or live in fear because of who they are. We must set the pace on this agenda and lead the way in better understanding and supporting our trans people.
"That's why I am delighted to announce that we will be reviewing the Gender Recognition Act - helping overturn an outdated system and ensure the transgender person's needs are at the heart of the process.
"It's fantastic to see trans issues increasingly on the public agenda. But we still don't know enough.
"That's why we are going to work with transgender people to understand more about the issues facing them."
Women and equalities committee chair Maria Miller said: "The Government response is four months late, but we look forward to reading it and continuing our discussions with Government about trans equality in due course."