The Chilean president, Michelle Bachelet, has signed into law a bill recognising civil unions between same-sex couples.
The law - which will come into effect in six months - gives same-sex and unmarried couples many of the rights enjoyed by married couples.
Several Latin American countries already recognise civil unions.
But only Argentina and Uruguay in South America allow full marriage by same-sex couples.
Among others, the new law gives couples the right to inherit each other's property and to receive pension benefits.
''It is estimated that more than 2,000,000 people in Chile are living together. Today we give them the option of having their unions legally recognised," said President Bachelet.
Gay rights advocates hailed the new law as a step toward full marriage rights.
"We are very happy. From October, couples will be able to have their unions legally recognised by law, something which a few years ago was only a dream, even a taboo," said gay rights campaigner, Rolando Jimenez.