Patients are to get their own health budgets so they can pick and choose what NHS services they want.
Ministers will include legislation in the Health Bill, due to be unveiled later, to allow the scheme to be piloted in England later this year.
Personal budgets have been used in social care since the mid 1990s and ministers now believe they can empower patients to get more from the NHS.
Both the Tories and Lib Dems have previously put forward similar plans.
The personal budget programme employed in social care includes direct cash payments to an individual as well as notional budgets that a patient can put in the hands of a social care professional.
In total, over 60,000 have taken up the option.
Jon Glasby, professor of health and social care at Birmingham University, said: "Personal budgets have allowed people in social care to be much more imaginative and use funds more carefully than the system did.
"There is no reason why this should not happen in health.
"However, it will need to be carefully introduced."
Where direct payments are handed over to individuals the way they are used is carefully monitored and people receive help from professionals about what services are available.
Steve Barnett, chief executive of the NHS Confederation, which represents managers, said: "There is a growing body of evidence to suggest health outcomes are improved when the patient is directly involved in making decisions about their treatment and the way in which care is delivered by NHS staff.
But he added: "There are significant barriers that need to be overcome before this policy is rolled-out nationally.
"Should patients be allowed to spend their personal budgets on non cost-effective treatments? Should individuals be allowed to top-up their care? Should patients be allowed to invest personal budgets to be spent at a later date?
"Personal health budgets could revolutionise the way in which care is delivered, but they are not without risks."
King's Fund chief executive Niall Dickson added: "Getting the initial payment level right will be important as will deciding what restrictions to place on the kind of treatment a patient is allowed to purchase with tax payers' money, and from whom."
Dr Hamish Meldrum, chairman of the British Medical Association, said the policy appeared to "further establish the idea of healthcare as a commodity", which would not be in patients' "best interests".
The idea of personal budgets was included in the review of the NHS by health minister Lord Darzi last year.
He and other members of the government believe they are an ideal vehicle to get patients exercising choice - a key plank of the reform of the NHS.
Ministers envisage it will be of particular interest to those with long-term conditions such as diabetes and people using mental health services.
For example, a person with diabetes may choose to use their budget to get treatment from a community clinic rather than being sent to a hospital specialist.
The Health Bill will also include a framework for the NHS constitution, which has been dubbed a bill of rights for patients, and legislation to protect children from tobacco.
This could lead to a curb on vending machines and the display of tobacco products in shops.
Launching the Bill, Health Secretary Alan Johnson said: "People rightly have high expectations of the care the NHS offers, and they want more control over their own health - which is why this Bill will give more power to patients and drive up the quality of care."
Shadow health secretary Andrew Lansley said: "Personal budgets have been at pilot stage since 2005. If Labour had stuck to their promises to deliver them then patients would already be benefiting".
Scotland and Wales currently have no plans to introduce personal health budgets.