The National Institute for Clinical Excellence (NICE) announced on Friday that three drugs should be prescribed for patients with mild and moderate forms of the disease.
The drugs are: donepezil (Aricept), rivastigmine (Exelon) and galantamine (Reminyl).
However, NICE has ruled that the drugs should not be made available on the NHS to patients with more advanced symptoms.
The decision is not legally binding, but health authorities will have to explain themselves if they flout the ruling.
Andrew Dillon, chief executive of NICE, said: "Alzheimer's disease is a very distressing condition and it is clear from the evidence that some patients and their families can benefit from the provision of these medicines."
It is estimated that up to 500,000 people in the UK have Alzheimer's disease.
More than half stand to benefit from the NICE decision, which it is estimated will cost the NHS £42m a year.
Research has shown that all three drugs can slow, or even reverse, some of the symptoms of Alzheimer's.
Refused to pay
However, the drugs cost £1,000 a year, and many health authorities have until now refused to pay for them, arguing that they are not cost effective.
Some experts have also questioned their clinical effectiveness.
The drugs cannot prevent the brain cell death associated with the disease.
But they do help the brain cells that remain to continue to communicate effectively with each other.
An Alzheimer's Society spokeswoman said the drugs "can help people retain cognitive facilities like memory and mood.
She said: "This gives people a couple of years of grace on a disease which has a devastating effect on individuals and their families.
"There is nothing else for Alzheimer's."
Professor Alistair Burns, professor of old age psychiatry at Manchester University, said: "Some people certainly get an improvement in their symptoms when they are taking the drugs, and the progression of the illness seems to be slowed down in other people.
"But, unfortunately, for a number of people the drugs make no difference to the course or symptoms of the illness."
"They are not a panacea for Alzheimer's disease, but they represent a significant advance on what professionals are able to offer patients with the disease."
Professor Martin Knapp, a health economist from the Institute of Psychiatry in London and a member of the Alzheimer's Research Trust, said the cost of the drugs would be more than offset by savings in residential care.
He said: "Recent surveys of residential nursing home care lead to estimate the current cost of long-term residential and nursing home care for Alzheimer's patients is over £2bn per year, which is based on 150,000 people being in care at any one time.
"Working on the assumption that the drug treatment will produce a delay of three months of entering into care for all those who are receiving treatment, there will be a cost saving of around £50m, and if the delay is six months, the saving would be in the region of £100m."