Pageant officials announced on Tuesday that, as of next year, transgendered women will be allowed to compete for the crown.
The rule change comes after a Vancouver contestant challenged her disqualification from the Miss Canada pageant.
Jenna Talackova, 22, was born male and underwent sex-change surgery at 19. She was disqualified by Canadian pageant organisers for not being a natural-born female.
Miss Talackova said last week: "I was devastated, and I felt that excluding me for the reason that they gave was unjust. I have never asked for any special consideration. I only wanted to compete."
Officials at the Miss Canada pageant changed their position last week to allow her to compete.
Paula Shugart, president of the Miss Universe Organisation, owned by Donald Trump, said that the decision to include transgender women in the Miss Universe beauty contest was the result of ongoing discussions with GLAAD (the Gay & Lesbian Alliance Against Defamation).
E!Online reports that GLAAD and the Miss Universe Organisation, issued a joint statement saying they were "pleased to announce that after more than two weeks of discussions, the Miss Universe Organisation is close to finalising an official policy change that will allow women who are transgender to participate in its beauty competitions".
Mara Keisling, executive director of the National Center for Transgender Equality, said the U-turn was a "sign of how more and more people get trans issues".