Peter Shumlin, the Democratic Governor of the small progressive-leaning state, signed into law a bill that lawmakers adopted last week. Vermont follows the states of Oregon and Washington in legalizing the practice.
"Vermonters facing terminal illness at the end of their lives now have control over their own destinies," Shumlin said, at a ceremony at the Capitol in Montpelier.
Vermont, a mostly rural state in New England, is the first US state to adopt physician-assisted suicide by legislative process rather than through a voter-initiated referendum.
Under the Vermont law, terminally ill patients who are given no more than six months to live can ask their doctors to prescribe a lethal dose of drugs to hasten their death.
Several safeguards are built into the law. These include a requirement for two medical opinions, the option of a psychiatric examination and a 17-day waiting period before a life-ending prescription can be filled.
In 2009, Vermont became the first state to legalize same-sex marriages. It now has been approved in 12 US states.
But it also has one of the fastest-aging populations in the United States. By 2030, one in four Vermonters will be 65 years of age or older, according to University of Vermont economist Art Woolf.
A Pew Research Center poll found that 84 percent of Americans support allowing a terminally ill adult patient to decide if they want to be kept alive.