Five independent commissioners will provide recommendations to deal with violence against the country's indigenous women.
Indigenous Affairs Minister Carolyn Bennett announced the inquiry at an emotional ceremony in Gatineau, Quebec.
The inquiry will last at least two years and cost up to $53.8m (£30.8m).
Though the federal government has launched the commission, each province has agreed to allow the commissioners to look at all jurisdictions, including whether local law enforcement or governments played a part.
The commission will also have the authority to summon witnesses to testify.
The investigation is expected to focus on the systemic causes of violence against indigenous women as well as recommendations on prevention.
A 2015 United Nations report revealed that young indigenous women in Canada were five times more likely to die under violent circumstances than non-Aboriginal women.
Families of victims have argued that police do not investigate missing indigenous women with the same scrutiny for cases involving white women.
The five commissioners are Marion Buller, British Columbia's first female First Nations judge; Michele Audette, a former president of the Native Women's Association of Canada; Qajaq Robinson, a Nunavut-born lawyer who focuses on aboriginal law; Marilyn Poitras, a law professor at the University of Saskatchewan; and Brian Eyolfson, a First Nations lawyer who served on the Human Rights Tribunal of Ontario.
The investigation is set to begin in September and will run through 31 December, 2018.
BBC reporter Joanna Jolly went on the trail of the murdered and missing to find out why so many of Winnipeg's Aboriginal women and girls have been killed. Read full article

Red Bull motorsport boss Helmut Marko told Germany's Bild newspaper: "The idea of Mercedes is finished. We are now focusing elsewhere."
Team principal Christian Horner said he was doing "necessary due diligence" in talking to other manufacturers.
With their partnership with Renault disintegrating, the team may be forced to switch to Ferrari engines.
Mercedes are understood to be against supplying Red Bull - who are contracted to Renault until 2016 - because they do not want to help a strong rival become more competitive.
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The German giant is also concerned about what it and many other F1 insiders perceive to be Red Bull's history of antagonistic relationships with engine partners.
Red Bull's relationship with Renault has been difficult for some time, and appears to have become untenable in recent months as the team's frustrations with the lack of competitiveness of the French engine boil over.
Honda is the only other manufacturer in F1, but partner McLaren would almost certainly exercise their veto over any potential deal with Red Bull, who in any case are not believed to be interested in a deal with the Japanese company at this stage.
Renault, which supplies only Red Bull and sister team Toro Rosso in F1, is in the final stages of negotiations to take over the financially troubled Lotus team, although no deal has yet been completed.
Ferrari team principal Maurizio Arrivabene said the Italian company was prepared to supply Red Bull if necessary.
He said he was not concerned about their reputation for being able to build highly-competitive chassis in F1, led by their design chief Adrian Newey.
Arrivabene said: "In theory they have big names, with Newey as chief designer and it is easy to think that if you give them the engine they will build a scary chassis, which means they will be really competitive.
"Concerning my team, my engineers and aerodynamicists know their own jobs. For that reason I don't have a problem, and competition is nice when you have a stronger competitor.
"This doesn't mean tomorrow morning we will give our engines to Red Bull or Toro Rosso.
"But I don't see any kind of problem to give our engine to any other team or be scared of the competition before they start.
"This is not the right spirit of competition or what Ferrari represents. We fight with everybody."
Canada has launched an investigation into missing and murdered indigenous women that will cost nearly C$14m (£8m) more than expected.
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Red Bull have said that their hopes of securing a Mercedes engine supply in 2016 are now over.