The minister for children and youth affairs, Charlie Flanagan, said it was "absolutely essential" to establish the facts about the Church-run "Mother and Baby" homes, which accommodated thousands of pregnant unmarried mothers.
He said "The government and the cabinet have decided to establish a Commission of Investigation with full statutory powers to examine all matters pertaining to 'Mother and Baby' homes throughout the state."
The move follows new research that shows 796 children, from newborns to a nine-year-old, died in a home run by the Bon Secours Roman Catholic order of nuns in Tuam in County Galway, between 1925 and 1961.
There are no burial records for the children, leading many to believe a mass grave in a disused septic tank discovered in 1975 near the home was the children's final resting place.
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Thousands of pregnant women were sent to many such homes in 20th century Ireland as the conservative Catholic society at the time ostracised women who became pregnant outside marriage.
Speaking in parliament after the announcement of the investigation, Irish Prime Minister Enda Kenny said the treatment of pregnant unmarried mothers at the time was an "abomination."
"This was Ireland of the '20s to the '60s. An Ireland that might be portrayed as a glorious and brilliant past, but in its shadows contained all of these personal cases where people felt ashamed, felt different, were suppressed, dominated and obviously the question of the treatment in the mother and babies homes is a central part of that."
The investigation will examine the high mortality rates at the homes, which was far greater than the general population.
It will also look at the burial practices at the homes, as well as the issue of adoptions and vaccine trials on children.