Colombian President Juan Manuel Santos called the "Victim's Law" historic because it pays damages to the relatives of those killed in violence, the BBC reported Saturday.
The law would also return millions of acres of land stolen from its rightful owners, but analysts said implementing the law is a huge challenge that could take 10 years.
It could cost as much as $20 billion to fund the law, officials said.
U.N. Secretary-General Ban Ki-moon attended the signing ceremony Friday at the country's capital, Bogota. He said the law is an "important advance" for the country.
In a Miami Herald report, Santos called the Victims and Land Restitution Law one of the most important initiatives of his young administration.
"If I accomplish this and nothing else, this will have made my presidency worthwhile," Santos said.