The Duke of Cambridge and Prince Harry said, with the passing of the years, the time was now appropriate to “recognise her positive impact” both at home and abroad with the monument.
It will be erected in a place she knew well, the public gardens of Diana’s former home Kensington Palace.
The royal brothers said: “It has been 20 years since our mother’s death and the time is right to recognise her positive impact in the UK and around the world with a permanent statue.
“Our mother touched so many lives. We hope the statue will help all those who visit Kensington Palace to reflect on her life and her legacy.”
William was 15 years old and Harry just 12 when their mother Diana was killed in a car crash in Paris on August 31 1997.
The Duke made a rare public admission earlier this month about his feelings following the accident, saying during a visit to a London bereavement centre he felt “very angry” when his mother died.
Harry revealed last summer during an interview he had not talked about Diana’s death “for the first 28 years of my life’’.
The 10th anniversary of Diana’s death was marked by a concert staged at Wembley Stadium, on what would have been her 46th birthday, and a service at the Guards’ Chapel near Buckingham Palace.
Diana’s sister Lady Sarah McCorquodale will be a member of the six-strong committee tasked with commissioning and privately raising funds for the creation of the statue, alongside Julia Samuel, a godparent of Prince George who was a close friend of the Princess.
It will be chaired by Jamie Lowther-Pinkerton, the royal brothers’ former principal private secretary. Its members will advise on the selection of the sculptor and will work with Historic Royal Palaces on the statue’s installation.
Kensington Palace said work on the artwork would begin soon but it was not possible to say when it would be unveiled, although it is hoped the ceremony would take place this year.
The Diana Award - a charity established to promote the Princess’s belief in the positive power of young people - will commemorate her life throughout 2017 with a range of events, from the launch of a major international award to the founding of national Kindness Day.
Earl Spencer, Diana’s brother, will be involved in the events honouring his sister’s legacy.
He will host an exhibition at the family’s home, Althorp, that will showcase individuals Walking In Her Shoes, and a gala fundraising event for the Diana Award in June.
In honour of the Princess, the charity has also launched its international Legacy Award for 20 exceptional young people who have excelled at creating positive social change.