Mexican President Enrique Pena Nieto has proposed legalising marijuana for medical purposes and easing limits for personal use of the drug.
He said he would be sending a bill to the Congress to increase the amount users can legally carry from the current five grams to 28 (0.18-1oz).
He had previously opposed efforts to liberalise Mexico’s tough drug laws.
Tens of thousands of people have been killed in drug-related violence in Mexico in recent years.
“We, Mexicans, know all too well the range and the defects of prohibitionist and punitive policies, and of the so-called war on drugs that has prevailed for 40 years,” President Pena Nieto said on Thursday.
“Our country has suffered, as few have, the ill effects of organised crime tied to drug trafficking.
“Fortunately, a new consensus is gradually emerging worldwide in favour of reforming drug policies. A growing number of countries are strenuously combating criminals, but instead of criminalising consumers, they offer them alternatives and opportunities.”
Mr Pena Nieto said marijuana use should be seen as a public health issue. He also stressed that the proposed bill would not completely legalised marijuana.
The move would place Mexico in the middle range of drug regulation policies in the region.
In Cuba and Venezuela, it is a criminal offence to possess any quantity of marijuana.
Meanwhile, Uruguay became the first country in the world in 2013 to make it legal to grow, sell and consume marijuana.
This week the Canadian government announced that would introduce legislation to legalise the sale of marijuana for recreational use.
Analysis by BBC’s Americas regional editor Candace Piette
The decision to liberalise marijuana for medical use will be welcomed by one couple – the parents of an eight-year-old girl named Grace Elizalde.
Their campaign to be able to obtain cannabis-based oil legally to help with their daughter’s epileptic condition did much to highlight the benefits of liberalisation.
Last year a federal judge ruled that the government could do nothing to stop the couple importing the oil. The Mexican media reported that Grace – who was having as many as 400 epileptic fits a day – experienced an 80% reduction in the intensity and frequency of her attacks.
The new law could also help reduce Mexico’s prison population. Official figures say 60% of inmates in federal prisons are there on drug charges, many of them for marijuana offences. The figure is 80% for women.
President Pena Nieto said the decision to increase the amount of marijuana for personal use could lead to the release of thousands of prisoners in Mexico’s overcrowded jails.