Sky is to make some of its most popular programmes, movies and sports available on digital terrestrial television.
Live Premiership football matches will feature on the new service
The four channels on the new service will offer a range of shows for a monthly subscription from this summer.
Viewers will receive them through a normal TV aerial, with a new set-top box, rather than satellite or cable.
Sky Three, Sky News and Sky Sports News will disappear from Freeview to make way. Media regulator Ofcom must approve the plans before they go ahead.
Content including live Premiership football and other big sporting events will be available on the new service, along with movies, news and entertainment.
More information about which channels will be made available, pricing and the programmes on offer, will be available nearer the launch.
But it will mean Sky channels, including Sky News, will no longer be available for free on Freeview.
"We look forward to bringing some of Sky's most popular content to digital terrestrial viewers," Sky's chief operating officer Mike Darcey said.
"This will give families more choice and increase the availability of leading content and channel brands," he added.
It is not the first time Sky has ventured into the digital terrestrial market - some content, including live Premiership games, was on digital terrestrial television (DTT) between 1998 and 2002.
Sky will replace its three existing DTT channels with four new 24-hour streams using the more efficient Mpeg4 compression technology.
The company hopes a range of set-top box manufacturers will start making receivers with compatible software once the service has launched.
The announcement came on the same day that Sky's cable rival NTL/Telewest relaunched under the name Virgin Media.
Virgin Media is offering customers a number of TV, broadband, and both fixed-line and mobile phone services.
It is also promising an on-demand TV channel, Virgin Central, which will make shows like The OC, Nip/Tuck, West Wing and Little Britain available at the touch of a button.
News of the Sky service also follows a decision by pay-TV company Setanta to broadcast some Premiership matches on DTT for £10.99 a month from next season.