Senators approved the legislation earlier this month, and the bill had been passed by the lower house of Congress in August.
It authorizes the production, distribution and sale of cannabis, allows individuals to grow their own on a small scale, and creates consumer clubs -- all under state supervision and control.
Mujica's signature means that the law takes effect, but the government now has four months to devise the specific rules and regulations. For example, it must determine how productions licenses will be granted and what types of marijuana can be grown.
Consumers over 18 will be able to grow their own marijuana, though no more than six plants per person. They can also get it through clubs or buy up to 40 grams per month from pharmacies.
The International Narcotics Control Board, a United Nations body that oversees the implementation of international treaties on drugs, has said Uruguay's move breaks international law.
INCB president Raymond Yans warned the move "will not protect young people, but rather have the perverse effect of encouraging early experimentation, lowering the age of first use, and thus contributing to... earlier onset of addiction and other disorders."