Women, children and men over 40 are now allowed to pass freely. Men aged between 18 and 40 will still require a permit, and trade is prohibited.
The move – strongly opposed by Israel – comes some three months after Egyptian President Hosni Mubarak lost power.Egypt and Israel closed borders with Gaza when Hamas seized power in 2007.
Israel retains concerns that weapons will be imported into Gaza through the Egyptian frontier, but Egypt insists it will conduct thorough searches of all those crossing.
The BBC’s Jon Donnison, in Gaza, says the decision to ease the border controls is symbolically important.It is another sign that the new leadership in Egypt is shifting the dynamics of the Middle East.
Israel has criticised the border move, saying it raised security concerns.
But with elections coming up in Egypt, our correspondent says the change in policy is likely to be popular with a public sympathetic to the Palestinian cause.
Although the border will still be closed for trade, the opening of the Rafah crossing is expected to provide a major economic boost to Gaza.
Previously, only about 300 Palestinians were allowed out every day.Gaza resident Ali Nahallah, who has not left the Strip for four years, told the BBC the changes would be welcome.
“Of course this is our only entry point from Gaza to the external world,” he said.
“We feel that we live in a big jail in Gaza so now we feel a little bit more comfortable and life is easier now. My kids are willing to travel to see other places other than Gaza.”
The latest move comes a month after Egypt pushed through a unity deal between the two main Palestinian factions – Fatah and Hamas – something Israel also opposed.
Fatah runs the West Bank, while Hamas governs Gaza.
Analysts say that with elections looming in Egypt the new policy is likely be popular with a public largely sympathetic to the Palestinian cause.Egypt’s co-operation in blockading Gaza was one of President Mubarak’s most unpopular policies.
Egypt says the crossing will be open from 0900 to 2100 every day except Fridays and holidays.Last year, Israel eased restrictions on goods entering Gaza, but severe shortages in the territory remain.
In 2010, the International Committee of the Red Cross said the blockade was a clear violation of international humanitarian law. Hundreds of smuggling tunnels run under the Egyptian border with Gaza.