All 43 police forces in England and Wales have agreed to adopt a new government code of conduct on the use of their powers to stop and search members of the public.
Home Secretary Theresa May had said the technique was being misused so often that it was damaging relations between the public and police.
Police will now record every outcome resulting from stop and search.
There will also be more limits on using the controversial "Section 60" stops.
Officers will need higher authorisation than at present to deploy Section 60 powers, under which someone may be stopped without grounds for suspicion in a situation where serious violence is anticipated.
Police will also soon allow public observers to watch stop and search in operation.
Next year, police will start mapping where the practice is used so people can see if one area is targeted more than others, and the public will be entitled to know why this is the case.
The changes are being brought in after Her Majesty's Inspectorate of Constabulary found that 27% of stop and searches did not satisfy the requirement that there be "reasonable grounds for suspicion", meaning more than 250,000 of the one million searches conducted last year could have been illegal.
The adoption of the Best Use of Stop and Search code comes as the Metropolitan Police said it used Section 60 powers after violent incidents at the Notting Hill Carnival in London on Monday.
Ken Hinds, a member of the London borough of Haringey's stop and search monitoring group, does not believe the new code will be enough to change attitudes in some areas.
Mr Hinds says none of the 125 stop and searches he has been subjected to in the last 30 years has resulted in police finding he has done anything illegal.
He told BBC Radio 4's Today programme: "After 40 years of abuse of stop and search, we now refer to it as stop and scarred in our community. It has alienated whole swathes."
Best Use of Stop and Search code
- Record the outcome of stops in more detail to allow assessment of how forces interpret the rules
- Record a broader range of outcomes, including penalty notices and cautions, to help understand how successful each stop and search is
- Allow members of the public to apply to accompany officers on patrols
- Make forces explain publicly how stops are used if they receive complaints over a set "trigger" level
- Only use the "no suspicion" Section 60 power when it is "necessary" to prevent serious violence
- Raise the level of authorisation required for Section 60 powers from police inspector to an officer above the rank of chief superintendent
- Limit the initial use of Section 60 powers to 15 hours, from the existing 24 hours, and "communicate with communities" about the purpose and success of such use
Last year, an Equality and Human Rights Commission report said black and Asian people were still far more likely than white people to be stopped and searched by police.
Black people were six times as likely to be stopped overall - but this was as high as 29 times in some areas.
A black police inspector, Nick Glynn of the Leicestershire force, has already been chosen to lead reform of the way stop-and-search powers are used nationally.
He said he had been stopped and searched himself about 30 times while off duty by officers from other forces.
Metropolitan Police Commander Adrian Hanstock said the new code supports the force's "ongoing drive to make stop and search more intelligence-led and effective".
He added: "The Met has made significant improvements to stop and search over the last two years to not only reduce the total number of people we search, but also to ensure that our officers focus on those areas and types of crime that the public are most concerned about.
"Our work with communities and monitoring groups is helping to ensure we are more transparent than ever in how stop and search helps to reduce crime and keep people safe."
The Met, the UK's largest force, says 251,161 people were subject to stop and search in the 12 months to July 2014, and 47,141 arrests made.
It said 115,270 of those stopped were white, 72,016 were black and 34,267 were Asian, with men accounting for 94% of all searches.
Chief Constable Alex Marshall, who heads the College of Policing, told Today that stop and search was an important power to protect communities and the changes were intended to address its "difficult history".
He said people would support its use if searches well targeted and carried out with respect.
Scotland Yard said Section 60 and Section 60AA orders were used under the Criminal Justice and Public Order Act at this years's Notting Hill Carnival.
Section 60AA gives police powers to order the removal of disguises in places where Section 60 is in use.
The Met said the measures were taken "in response to incidents of violence, and intelligence received, which have taken place within a short period of time".
Three men were stabbed and two police officers were injured in a series of violent clashes at the carnival on Monday evening.