German firms will be forced to make their executive boards at least 30% female after the country's two leading political parties agreed on the policy.
The deal between Chancellor Angela Merkel's conservative partnership between Christian Democrats (CDU) and Christian Social Union (CSU), and left-wing Social Democrats (SPD) led by Sigmar Gabriel, will see the threshold implemented from 2016.
It forms part of wider talks to form a government following the German elections in September, where Merkel won a convicning re-election. However, the Free Democratic Party (FDP), who formed part of the previous Merkel administration, lost all of its seats. As a result, Merkel's conservatives must strike a deal with the SPD to form a majority government.
"This is an important signal to improve the career chances for women and for greater equality in the labour market," said Manuela Schwesig, who led the talks for the SPD.
"I am pleased that we have come to a reasonable agreement with the SPD in favour of women," said Annette Widmann-Mauz, CDU's head negotiator.
As well as the gender quota for boards, the two camps also agreed to a better benefits package for parents wishing to work part time or who need to take time off work to care for a relative.
Merkel secured a third term as German chancellor when her CDU part won 41.5% of the vote in the September elections.
A victorious Merkel declared the win "a super result" as her main rivals, the SDP, won just 26% of the vote.
However, Merkel's victory just fell short of an absolute majority of 42% and she has to build a new coalition government. The FDP won only 4.8% of the vote, just short of the 5% threshold needed to win seats in parliament.
It left the FDP with no national representation for the first time in post-war German history.
Other parties that did better were the Green Party, which won 8.4%, the Left Party which claimed 8.7% and even the newly created Alternative fuer Deutschland (AfD), which won 4.7%.