The United States will require its nationals to carry passports to return from Canada and Mexico by 2008, under new rules designed to improve security.
Only a fifth of Americans currently have passports
The regulations, to be finalised later this year, would also require Canadians entering the US to produce a passport.
Under the current systems, Canadians and US citizens can travel with a driving licence or birth certificate.
After the announcement, Canada said it might now require US visitors to use passports to enter the country.
"Our system has really always worked on the basis of reciprocity," Canadian Public Safety Minister Anne McLellan said.
"Therefore we will review our requirements for American citizens, and we're going to do that in collaboration with the United States."
The rules will also apply by 2006 to US nationals travelling to and from Bermuda and Panama.
The changes were recommended in intelligence legislation approved by Congress last year.
Critics say the regulations could harm trade and tourism.
Canada is the largest trading partner of the US, with more than $1bn (£530m) worth of goods crossing the border every day.
A spokesman for the Mexican Embassy in Washington told the Associated Press news agency that the regulations would have no impact on tourism or trade flow.
US Secretary of State Condoleezza Rice said Washington was striking the right balance between protecting its borders and not hindering commercial activity.
Only 20% of Americans are thought to have passports, and officials are planning to print millions more to cope with extra demand.