A judge will lead a public inquiry into the conduct of the original police investigation, while a separate inquiry will look at the "culture, practices, and ethics" of the British press.
The Prime Minister also announced that the Press Complaints Commission is to be replaced by a new independent regulatory body.
News of the inquiries was welcomed by Andrew Graystone, director of the Church and Media Network.
"This is a moment of opportunity to think really carefully about what we ask for from the press, what standards are acceptable, and how we regulate it," he said.
"Closing the paper doesn't change anything but what's important is that we learn from this and do things differently."
Mr Graystone said phone hacking was "unacceptable" and that there was a need for journalists to reconsider their motives when investigating stories.
He continued: "When journalists are being clever and using clever techniques to get at the truth that other people are trying to hide, that's justifiable.
"But when they are using underhand means to get at stories simply to scandalise or titillate the public, that is not acceptable.
"What we need is a reinvention of the purpose of journalism and a reminder to journalists that they've got a higher calling than simply producing celebrity gossip."
Dave Landrum, Director of Advocacy at the Evangelical Alliance said the hacking scandal was a reflection of the wider culture pervading the British press.
"The closure of the News of the World should not deflect attention from the values that too often drive journalism. When we let our human nature run riot we wreak havoc on our society," he said.
"This is not just about the criminal activities of one paper, it is about the culture that pervades too much of our press. This idea that so long as you can get away with it, the end justifies the means.
"It feeds into a public obsession with knowing everything about everyone, an obsession that has driven papers to incredible and reprehensible lengths to deliver exclusives and exposés."
The Prime Minister's statement came after James Murdoch announced the closure of the News of the World yesterday.
The Prime Minister said he took "full responsibility" for the appointment of former News of the World editor Andy Coulson as the Downing Street communications chief.
Mr Coulson was arrested at a police station in south London this morning over his involvement in the phone hacking and allegations that the paper illegally paid police £100,000 while he was editor.
The Prime Minister told reporters on Friday that he would have accepted the resignation of Rebekah Brooks, former News of the World editor and current News International chief.