Britain and the European Commission have reached agreement on a transition deal which will allow talks on the future trade relationship to be triggered later this week.
Brexit Secretary David Davis hailed the agreement as a "significant step" following talks with EU chief negotiator Michel Barnier in Brussels.
But Mr Barnier cautioned that some issues remained to be settled, including the thorny question of the Irish border and the governance of the eventual withdrawal agreement.
Under the terms of the joint legal text agreed by Mr Barnier and Mr Davis, the UK will be able to negotiate and ratify trade deals with outside countries following Brexit day in March 2019, to enter into force after the end of a transition period lasting until the end of 2020.
EU citizens arriving in the UK during the transition, as well as Britons settling on the continent, will have the same rights as those in place before Brexit day, said Mr Barnier.
The agreement must be approved by EU leaders meeting at the European Council summit on March 22 and 23. This will allow vital negotiations on future EU/UK trade relations to get under way in earnest.
Talks will continue on outstanding issues over the summer before a final text of the withdrawal is agreed in October and sent to the European and UK parliaments for ratification.
Speaking alongside Mr Barnier at a Brussels press conference, Mr Davis said: "The deal we have struck today, on top of that agreed in December, should give us confidence that a good deal for the United Kingdom and the European Union is closer than ever before."
The pound jumped by almost 1% against the dollar to 1.40 US dollars following news of the agreement.
Sterling was trading up 0.7% against the euro at 1.14 euros.
Prime Minister Theresa May said: "Prior to December, people questioned whether we would get agreement then. We did. People questioned whether we would get agreement now. We have.
"I think what this shows is that with goodwill on both sides, working hard, we can get an arrangement for the future which will be in the interests of the UK and in the interests of the European Union and it will be good for all parts of the UK."