The Ministry of Justice is scrapping rules which prevent some victims of crime from being compensated if they lived with their attacker.
The “same roof rule” was changed in 1979, but not retrospectively, meaning victims from before that time have been refused payouts.
It is part of a government review to “improve access” to compensation.
Justice Secretary David Gauke said he wanted to “make sure victims get the awards they’re due”.
The Court of Appeal ruled in July that the pre-1979 caveat in the Criminal Injuries Compensation Scheme (CICS) had unfairly denied compensation to a claimant who was abused as a child by her stepfather.
The government said it agreed with the ruling and would not appeal.
The review into CICS, launched on Sunday, will also look at the existing time limit where adult victims have to apply for compensation within two years of the crime.
The Ministry of Justice (MoJ) said both measures would be especially relevant for victims of historic child abuse and seek to “reflect the changing nature of crime” and “better support victims”.
The CICS is available in England, Wales and Scotland and is funded out of government spending. Last year, it paid out more than £150m to victims.
Claims can be made in relation to mental or physical injury, sexual or physical abuse, loss of earnings and the death of a close relative.
The Ministry Of Justice will also look at whether to expand the definition of a crime of violence to include sexually exploitative behaviour, such as grooming, and how victims of terrorism should be compensated.
The review will look at the “sustainability” of the scheme and the “affordability” of any changes.
BBC home affairs correspondent, Danny Shaw, said it would be the “most far-reaching review of the scheme for more than 20 years”.
Mr Gauke said: “Whilst no amount of compensation can make up for the immense suffering endured by victims of violent crime, it is vital they receive the help and support needed to rebuild their lives.
“Over the years we’ve seen more prosecutions for sexual offences and sadly experienced the horror of terrorism.
“We need to make sure these victims get the awards they’re due so we will be looking to ensure the criteria are appropriate.”
The announcement was welcomed by Barnardo’s chief executive Javed Khan, Victim Support chief officer Diana Fawcett, and Rape Crisis co-chairwomen Dawn Thomas and Dianne Whitfield.
In a joint statement, they said: “As a coalition, we have long campaigned to get justice for victims of child sexual abuse who have lost out due to illogical rules governing the scheme.
“We are glad the Ministry of Justice has listened to our concerns, so victims will at long last get the compensation they so rightly deserve.”
The review will start immediately and is expected to report back to the government in 2019 with any recommendations for changes to the scheme.