The shift announced Tuesday will allow riders and drivers to file allegations of rape, sexual assault and harassment in courts and mediation, rather than being locked into an arbitration hearing.
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The policy shift was detailed in a letter titled "Turning the lights on" published on the company's site.
Uber's Chief Legal Officer Tony West wrote that the company "will no longer require mandatory arbitration for individual claims of sexual assault or sexual harassment by Uber riders, drivers or employees."
The San Francisco company is also scrapping a policy requiring all civil settlements of sexual misconduct to be kept confidential, giving victims the choice of whether they want to make their allegations public.
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Nothing in Uber's previous policy prevented its riders and drivers from asking police to open criminal investigations into their accusations.
Uber's new approach represents a conciliatory step from CEO Dara Khosrowshahi. He was hired last August amid a wave of revelations and allegations about rampant sexual harassment in Uber's workforce, a cover-up of a massive data breach , dirty tricks and stolen trade secrets .
Khosrowshahi has vowed to "do the right thing," repair the damage from previous missteps and lure back alienated riders who defected to rivals such as Lyft.
Not to be outdone, Lyft announced Tuesday it would also scrap its rules binding passengers and drivers to private arbitration and confidential settlements in civil cases involving allegations of sexual misconduct.
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While applauding Uber for making a "good decision," Lyft also made a veiled reference to the legal pressures that may have contributed to the change.
Uber is shifting its stance after receiving an open letter from the New York law firm Wigdor LLP, which already has filed a lawsuit seeking to be certified as a class action representing women who allege they have been raped, sexually harassed or abused in other ways by Uber drivers.
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The letter , sent on behalf of 14 women, called upon Uber's board to drop the arbitration requirement to shine a light on abusive conduct.
"Silencing our stories and the stories of countless other female victims emboldens predators by failing to hold them accountable," the letter asserts. "This vicious cycle perpetuates senseless violence."
Jeanne Christensen, a Wigdor partner, congratulated Uber for shedding the arbitration policy, a move she said "will begin a process to reduce future suffering by women passengers.
But she said in a written statement Tuesday that Uber continues to fight against class-action status for the 14 women she represents, showing it is "not fully committed to meaningful change" because victims are more likely to pursue claims as part of a group.
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The changes governing sexual misconduct come a month after Uber announced it will do criminal background checks on its U.S. drivers annually and add a 911 button for summoning help in emergencies. It's an effort to reassure its riders and address concerns that it hadn't done enough to keep crooks from using its service to prey on potential victims.
Giving victims of sexual assault or perceived sexual harassment more options sends an important message that Uber is taking the issue more seriously, said Kristen Houser, a spokeswoman for Raliance, a coalition of groups working with Uber to prevent sexual abuse on its service.
It may also spur more complaints. For example, Houser said riders may now be more emboldened to report inappropriate behavior, such as when a driver asks them out for a date.
"You want people to report lower level infractions so you can nip them in the bud before they become bigger problems," she said.
By the end of the year, Uber will also start to publicly report incidents of alleged sexual misconduct in hopes of establishing more transparency about the issue throughout the ride-hailing and traditional taxi industries.
"We think the numbers are going to be disturbing," said Tony West, a former government prosecutor during the Obama administration who became Uber's chief legal officer after Khosrowshahi took over.
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ABC News' M.L. NESTEL contributed to this report.