The announcement, made on Tuesday in Canada, will also see the Trudeau government lift the two per-cent cap on First Nation funding, implement the recommendations of the Truth and Reconciliation Commission and review all legislation and policies impacting Indigenous rights.
Vowing to renew the relationship between Canada and its Aboriginals, Trudeau told hundreds of chiefs of Canada's First Nations at an Assembly of First Nations (AFN) meeting that his government was committed to repairing the partnership with Canada's Aboriginals, who make up five per cent of the population but have higher levels of poverty and addiction and are far more often victims of crime than other Canadians.
"I know that renewing our relationship is an ambitious goal, but I am equally certain that it is one we can, and will, achieve if we work together," Trudeau said.
His speech marked the first time a prime minister has ever addressed delegates at the opening of an AFN assembly. Mr Trudeau was also the first to walk in as part of the ceremonial grand entry.
Details of the consultation process for the inquiry will soon be outlined by cabinet ministers, Trudeau said.
National Chief of the Assembly of First Nations Perry Bellegarde said violence had plagued Aboriginal communities for too long.
"I know that renewing our relationship is an ambitious goal, but I am equally certain that it is one we can, and will, achieve if we work together."
"We know it's time to end the violence. We know it's time to end that violence in our communities and amongst our families ... it has to stop," Mr Bellegarde said before Trudeau addressed the gathering.
Critics have said an inquiry would likely take years to complete and cost millions of dollars, while its eventual recommendations will echo previous inquiries on inequalities faced by Indigenous communities and lack enforcement power.
Trudeau, whose Liberals won office in October after nearly a decade of Conservative rule, said during his campaign he would launch an inquiry on the murder and disappearance of hundreds of Indigenous women in recent decades, a move former Prime Minister Stephen Harper resisted.
"We have made this inquiry a priority for our government because those touched by this national tragedy have waited long enough. The victims deserve justice, their families an opportunity to be heard and to heal," Trudeau said in prepared remarks for a speech to the Assembly of First Nations.
The Royal Canadian Mounted Police said last May that 1,017 Aboriginal women had been murdered between 1980 and 2012.
Another 108 are missing under suspicious circumstances, with some cases dating back to 1952.
International rights groups, including Amnesty International and the human rights branch of the Organization of the American States, have urged Canada's government to investigate.