Transgender Catholics are allowed in some situations to be baptised and serve as godparents, the Vatican has said in a statement.
The document was signed on October 21 by Pope Francis and Cardinal Victor Manuel Fernandez, who heads up the Vatican's Dicastery for the Doctrine of the Faith.
It was posted on that office's website on Wednesday.
If it does not cause scandal or "disorientation" among other Catholics, a transgender person "may receive baptism under the same conditions as other faithful", the document says.
Similarly, the document said trans adults - even if they have undergone gender-transition surgery - can serve as godfathers or godmothers under certain conditions.
It comes after a national conference of Catholic bishops in the United States rejected the concept of gender transition.
"It is a major step for trans inclusion ... it is big and good news," Francis DeBernardo, executive director of Maryland-based New Ways Ministry, which advocates for greater LGBTQ acceptance in the church, told Associated Press.
Mr DeBernardo said it appears to be a reversal of a 2015 Vatican decision to ban a trans man in Spain from becoming a godparent.
During his papacy, Pope Francis has frequently expressed an interest in making the Catholic Church more welcoming to LGBTQ people, even though doctrines rejecting same-sex marriage and sexual activity remain firmly in place.
The Reverend James Martin, a Jesuit priest who has advocated for years for greater LGBTQ inclusion in the church, welcomed the new document.
"In many dioceses and parishes, including in the US, transgender Catholics have been severely restricted from participating in the life of the church, not because of any canon law, but stemming from the decisions of bishops, priests and pastoral associates," he told AP.
"So the Vatican's statement is a clear recognition not only of their personhood, but of their place in their own church," he said.
"I hope that it helps the Catholic church treat them less as problems and more as people."
According to the Vatican, the document was a response to a letter submitted in July by a Brazilian bishop asking about LGBTQ people's possible participation in baptisms and weddings.
Mr DeBernardo said the document "proves that the Catholic Church can - and does - change its mind about certain practices and policies", and suggested some diocesan anti-trans policies might now have to be rescinded.
But he expressed disappointment that the document maintains a ban on same-sex couples serving as godparents.
