Marion Buller, the first indigenous woman to be named a judge in Canada's westernmost British Columbia province in 1994, will chair the five-member commission.
It also includes lawyers, a professor and an activist, all specializing in indigenous rights.
The inquiry is the culmination of years of lobbying by native leaders, activists and victims' families seeking to know why more than 1,200 indigenous women were murdered or have gone missing over the past three decades.
Indigenous women represent four percent of Canada's population but 16 percent of homicide victims.
Tasked with digging into the root causes of this violence, and granted powers to summon witnesses and subpoena documents, the panel led by Buller will report its preliminary findings and make recommendations next year.
A final report on improving native women's safety and ways to commemorate the dead will be released in 2018.
"The national inquiry is an important step in our journey of reconciliation with indigenous people in Canada," Indigenous Affairs Minister Carolyn Bennett told a press conference.
"This inquiry is needed to achieve justice and healing and to put an end to this ongoing and terrible tragedy."
'Disparities'
Concern over violence against aboriginal women became an issue after dozens of prostitutes went missing in Vancouver's seedy Downtown Eastside and were later determined to have been victims of a serial killer.
The previous Conservative administration had long resisted calls for an inquiry, seeing the disproportionate number of deaths and disappearances as resulting from domestic violence.
A 2014 report and an update last year by the Royal Canadian Mounted Police identified 1,049 murdered and 172 missing aboriginal women between 1980 and 2012.
In most cases, the perpetrators were known to the victims.
But Prime Minister Justin Trudeau's Liberal government has linked the violence to racism, sexism, colonialism, poverty, unemployment, lack of safe transportation, mental health and substance abuse.
Some 2,000 native women who met with ministers in recent months to lay the groundwork for the inquiry "left no doubt in our minds about the urgent need to examine the underlying and deep systemic challenges of this violence, including racism, sexism and the sustained impact of colonialism," said Bennett.
She said policing and the child welfare system would also be examined, while Minister of Status of Women Patty Hadju said the inquiry would look at institutional sexism and racism.
Holding back tears, Justice Minister Jody Wilson-Raybould, who is herself an indigenous woman, said the inquiry would focus on "the root causes of the disproportionate rates of violence, crime against aboriginal women and girls."
"We need to identify the causes of those disparities and take action now to end them," she said.
"We know that the inquiry cannot undo the injustices that indigenous peoples have suffered over decades but we can review what has happened in the past, reflect on our present circumstances and chart a path moving forward."
