They include immigrants living in the US for five years who have children staying legally in the US.
Up to five million are expected to benefit from a reform package forced through using executive orders, which allow Mr Obama to bypass Congress.
Republicans have accused the president of an “illegal power-grab”.
There are estimated to be 11 million illegal immigrants in the US.
Under Mr Obama’s plan, undocumented parents of children who are US citizens or legal residents will be able to apply for work permits lasting three years.
Only parents who have lived in the US for five years will qualify – an estimated four million people.
Hundreds of thousands more will benefit from other changes, including a decision to broaden a scheme giving temporary legal status to those who arrived in the US as children.
How has the immigration debate in the United States become so polarised, so toxic, so unpleasant?
That it has cannot be doubted. Barack Obama says he has grown so weary of trying to get Congress to engage seriously that he is going it alone.
He’s bypassing the legislature and brandishing his big stick – the executive order. It is governance by diktat. And the reaction of his opponents suggests it will spark an atmosphere of retaliation and revenge.
“Come out of the shadows and get right with the law,” Mr Obama said in a televised address.
He insisted that his proposals, which are the biggest immigration reforms since the mid-1980s, did not amount to an amnesty.
“What I’m describing is accountability – a common-sense, middle ground approach,” he said.
Although the plan will allow millions to work, it will not offer a path to citizenship or entitle them to the same benefits as Americans, he said.
“If you’re a criminal, you’ll be deported. If you plan to enter the US illegally, your chances of getting caught and sent back just went up,” he said.
Republicans reacted with fury, Arizona Republican Senator John McCain calling it an “illegal power-grab” that “fails to address the root causes of the dysfunction in our immigration system”.
And Texas Governor Rick Perry argued the move would “lead to more illegal immigration, not less”.
An Obama aide rebuffed the criticism, saying the president had taken advice from the secretary of homeland security and the attorney general about the action.
“It’s entirely consistent with the way previous presidents have exercised their executive authority,” the aide said.
Mr Obama’s plan does not go as far as a bill that would have provided a path to citizenship for millions of undocumented immigrants.
The bill was passed by the Democrat-led Senate, but the Republican-controlled House of Representatives refused to debate the proposal.
On Thursday, Mr Obama said those who questioned his authority to use executive orders should simply pass the bill.
Campaigners for migrants’ rights broadly welcomed Mr Obama’s plans.
But some activists worried that the promise of a three-year work visa would not be enough for many people to come out into the open.
“It’s a step in the right direction, but it’s going to fall far short of the mark,” veteran advocate Cheryl Little told Reuters news agency.
She said the reforms amounted to “simply a temporary reprieve from deportation.” (BBC)
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