The law was announced in October as a way of combating the impact of an ageing population and shrinking workforce.
"The state advocates that one couple shall be allowed to have two children," the new law decrees.
The legislation will allow married couples to have a second child, but places limits on additional births.
About 90 million families may qualify for the new two-child policy, which would help raise the population to an estimated 1.45 billion by 2030, the planning commission has said. China, the world's most populous nation, had 1.37 billion people at the end of last year.
For decades, China harshly implemented the one-child policy with a dedicated national commission imposing fines and forcing abortions on couples who violated the law.
Rural families were already legally allowed to have two children if the first was a girl - and ethnic minorities were allowed an extra child.
The policy led to a number of sex-selective abortions and infanticides affecting female babies across the country because of the preference for boys.
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China ends strict one-child policy
Decades of the enforcing the policy means China's population is experiencing a severe gender imbalance and a dwindling workforce as the population ages.
Beijing loosened the policy in late 2013, allowing couples to have a second child where one partner was an only child, but as of June, only 1.5 million of the 11 million eligible couples had applied to expand their families, the official Xinhua news agency has reported.
