The Personal Independence Payment (PIP), which was trialled in the North of England in April, replaces Disability Living Allowance (DLA) for working-age claimants, which was introduced over 20 years ago.
Ministers said the new benefit is designed to support disabled people to live independent lives and includes a new face-to-face assessment and regular reviews.
Esther McVey, Minister for Disabled People, said: "Disability Living Allowance is an outdated benefit introduced over 20 years ago and was very much a product of its time.
"The Personal Independence Payment has been designed to better reflect today's understanding of disability, particularly to update our thinking on mental health and fluctuating conditions.
"We are introducing a new face-to-face assessment and regular reviews - something missing in the current system. This will ensure the billions we spend on the benefit give more targeted support to those who need it most."
The new assessment includes an individual's ability to carry out a broad range of activities such as washing, dressing, cooking and getting around as well as reading and communicating.
PIP will now be rolled out across England, Wales and Scotland, although some existing working age claimants will start to be re-assessed from October.
When DLA was introduced in 1992, it covered 1.1 million people, at a cost of around £3 billion, which has risen to more than £12 billion a year now. In the past decade, the number of people claiming DLA has risen by almost a third from 2.4 million to 3.3 million.
Some welfare campaigners have warned that a number of people who would qualify for the existing DLA will not meet the criteria for the PIP.