The governors, whose dual role as both champions and regulators of the BBC has been criticized, will be replaced with two new bodies with distinct functions.
The reforms were announced in Parliament by Culture Secretary Tessa Jowell, who confirmed the BBC's royal charter would be extended 10 years.
She also announced the continuation of the license fee -- paid by every television owner in Britain to fund the BBC.
Jowell said the governors' current role was "unsustainable" and lacked "clarity and accountability."
A new BBC Trust will be the voice of the license fee payer, while an executive board, headed by Director General Mark Thompson, will carry out the BBC's day-to-day management and be accountable to the trust.
BBC chairman Michael Grade, who will chair the new trust, welcomed the proposals but said it was "regrettable" the BBC's own reforms of the governors had "not had time to prove themselves."
"For the first time in the BBC's history, there is now a clear distinction and appropriate separation between governance and management," he said.