Mexican President Enrique Pena Nieto has proposed legalising marijuana for medical purposes and easing limits for personal use of the drug.
He said he would be sending a bill to the Congress to increase the amount users can legally carry from the current five grams to 28 (0.18-1oz).
He had previously opposed efforts to liberalise Mexico's tough drug laws.
Tens of thousands of people have been killed in drug-related violence in Mexico in recent years.
"We, Mexicans, know all too well the range and the defects of prohibitionist and punitive policies, and of the so-called war on drugs that has prevailed for 40 years,'' President Pena Nieto said on Thursday.
"Our country has suffered, as few have, the ill effects of organised crime tied to drug trafficking.
"Fortunately, a new consensus is gradually emerging worldwide in favour of reforming drug policies. A growing number of countries are strenuously combating criminals, but instead of criminalising consumers, they offer them alternatives and opportunities."
Analysis: Katy Watson, BBC Mexico and Central America reporter
It has been quite a change of heart for Mexico's President Enrique Pena Nieto.
Only a few months ago, he said he was not in favour of legalising marijuana. Now he is making steps to allow the use of medical marijuana and considering changes to decriminalise small quantities of the drug for recreational use.
The news came just two days after he addressed the United Nations General Assembly at a special session on drug policy - a meeting that was called for by Colombia, Guatemala and Mexico in 2012 and seen as a chance to re-think the current strategy of fighting drug-trafficking.
In fact, President Pena Nieto was not even going to attend the meeting in New York until late last week when he made a U-turn.
Perhaps he realised that not showing up would send a pretty stark message about the importance he places on improving the lives of millions of Mexicans.
Mr Pena Nieto said marijuana use should be seen as a public health issue. He also stressed that the proposed bill would not completely legalise marijuana.
The move would place Mexico in the middle range of drug regulation policies in the region.
In Cuba and Venezuela, it is a criminal offence to possess any quantity of marijuana.
Meanwhile, Uruguay became the first country in the world in 2013 to make it legal to grow, sell and consume marijuana.
This week the Canadian government announced that would introduce legislation to legalise the sale of marijuana for recreational use.