Flanked by Vice President Kamala Harris, Defense Secretary Lloyd Austin and Chairman of the Joint Chiefs of Staff General Mark Milley, Biden signed the executive order in the Oval Office.
"It’s simple: America is safer when everyone qualified to serve can do so openly and with pride," Biden said on Twitter after the signing.
Former Democratic President Barack Obama in 2016 allowed trans people to serve openly and receive medical care to transition genders, but Republican President Donald Trump froze their recruitment while allowing serving personnel to remain.
When Trump announced the ban in 2017 on Twitter, he said the military needed to focus on "decisive and overwhelming victory" without being burdened by the "tremendous medical costs and disruption" of having transgender personnel.
A November 2020 report by the LGBT-rights think tank the Palm Center co-written by former military Surgeons General said the transgender ban had hurt military readiness.
During his confirmation hearing, Biden's pick to lead the Pentagon, Retired Army General Lloyd Austin, said he supported overturning the ban.
The US Supreme Court ruled that the Trump transgender policy of 2019 could stand while it faces separate lawsuits in lower courts.
About 1.3 million active personnel serve in the US military, Department of Defense data shows. There are no official figures on the number of trans members but the Rand Corp, a US policy research institute, estimated in 2016 about 2,450 active service members were transgender.
While advocates applaud Biden's move, the fact that any president can decide whether transgender people can serve in the military is problematic, they say. Any American who is fit and able should have the right to serve, they argue.
"We must make sure that future presidents do not backslide on our values of equality and inclusion, and I intend to add a provision to this year’s defense policy bill to secure a permanent policy of nondiscrimination for our armed forces," said Congresswoman Jackie Speier, Chair of the House Armed Services Military Personnel Subcommittee.
Nic Talbott, a transgender man, was forced to drop out of the Army Reserve Officers' Training Corps (ROTC) due to Trump's ban. On Monday, he said Biden's move had given him and other transgender people an opportunity to once again join the military.
"This is such a huge relief, such a huge weight off my shoulders," Talbott said.
"I know there are thousands of other people out there just like me who have been counting down to this day, waiting to be able to start our careers and start our lives."Once the order is implemented, Talbott said he plans to enter another ROTC.