Pageant officials said they are working on the language of the official rule policy change but expected final word to come soon. The rules will have to be approved by Donald Trump, who runs the Miss Universe Organization, and NBC. Trump and NBC co-own the contest.
The announcement of the policy change comes a week after the organization decided to allow Jenna Talackova to compete for Canada's spot in the Miss Universe pageant this year.
Talackova, a 23-year-old from Vancouver, underwent a sex change four years ago after being born a male.
Talackova's sex change initially led organizers in Canada to disqualify her from the 61st Miss Universe Canada pageant in May, citing a rule that she must be a "natural born" woman.
Talackova pleaded with the pageant's leaders to drop the rule.
"I am a woman," Talackova said last week. "I was devastated, and I felt that excluding me for the reason that they gave was unjust. I have never asked for any special consideration. I only wanted to compete."
The advocacy group GLAAD called on the Miss Universe Organization to review her case, as well as open the competition to transgender women, after she was disqualified from competing in the Miss Universe Canada contest next month.
"We want to give credit where credit is due, and the decision to include transgender women in our beauty competitions is a result of our ongoing discussions with GLAAD," said Paula Shugart, president of the Miss Universe Organization. "We have a long history of supporting equality for all women, and this was something we took very seriously."
The Miss Universe Organization produces the pageant, as well as the Miss USA and the Miss Teen competitions, according to the organization's website. The Miss Universe pageant began in 1952 as a local "bathing beauty" contest, headed by California-based Catalina Swimwear, the site says.
Trials for next year's Miss Universe pageant begin this summer.
"Everybody should be allowed to participate in every aspect of society," said Mara Keisling, executive director of the National Center for Transgender Equality. "Absolutely it's good news, it's another pernicious structural discrimination barrier taken down."
Susan Stryker, director of the Institute for LGBT Studies at the University of Arizona, said she hoped to see similar progress in areas that would impact more people — like employment discrimination issues and anti-transgender violence.
"The next question is, can't we move beyond beauty pageants and make changes in areas that have more relevance," she asked.
She pointed out that while trans people should be able to take part fully in society, there are issues with beauty pageants overall, questions of "whether beauty pageants are the best way to advance the cause of girls, of women."
But she said trans women participating in the pageants could make a difference, and help shatter stereotypes and educate the public. She pointed to Chaz Bono, a transgender man, and the impact of his appearance on "Dancing with the Stars."
"To that extent, it's just a great thing to have a positive media representation even if it is inconsequential," she said.
Contest officials worked closely with GLAAD to change the policy, and the advocacy group on Tuesday praised the decision and the work by Talackova to remain a contestant.
"The Miss Universe Organization today follows institutions that have taken a stand against discrimination of transgender women including the Olympics, NCAA, the Girl Scouts of America and The CW's America's Next Top Model," said GLAAD's senior director of programs Herndon Graddick. "At a time when transgender people are still routinely denied equal opportunities in housing, employment and medical care, today's decision is in line with the growing levels of public support for transgender people across the country."