The "Protection from Abuse" law, approved by the cabinet on Monday, is aimed at protecting people from "all forms of abuse" and offering them shelter as well as "social, psychological, and medical aid," according to its text.
The law, approved during a cabinet meeting on August 26, came several months after a local charity launched a nationwide campaign to combat violence against women.
Saudi Arabia has often faced international criticism for lacking laws that protect women and domestic workers against abuse.
Under the 17-article bill, those found guilty of committing psychological or physical abuse could face prison sentences of up to one year and up to $13,300 in fines.
Women are the main victims of domestic violence with "98 percent of physical violence committed by men against women," it said.
Saudi Arabia, which applies a strict version of Islamic law, imposes many restrictions on women, based on laws and traditions that empower male guardians.
The legislation was hailed by Saudi human rights activists who said they were waiting to see it implemented.
"This is a good law that serves major segments of the society in the kingdom, including women, children, domestic workers and non-domestic workers," Khaled al-Fakher, secretary-general of the National Society for Human Rights, a government-licensed body, told the Reuters news agency.
"We are always in favour of an explicit law that does not need interpretations or personal judgment," said Fakher, whose organisation helped draft the law.
The United Nations urged the kingdom to create laws to protect women as early as 2008.
The King Khalid Foundation in April launched an unprecedented campaign to raise awareness about violence against women. The campaign's main poster, which featured a woman wearing a veil that showed one of her eyes blackened, was widely circulated on the Internet.
Underneath the picture, a caption read: "Some things can't be covered - fighting women's abuse together."
Fakher said one reason domestic violence was rampant in Saudi Arabia was because tribal traditions prevented women from reporting abuse for fear of social stigma.
"Women think what the community would say about her if she filed a complaint," he said.
There has also been an increase in reports of cases of domestic abuse in which families mistreat their maids, sometimes resulting in them turning on the children of their employers.
The law gives those who report abuse the right to remain anonymous, as well as immunity from litigation should abuse fail to be proven in a court. It also urges witnesses to report abuse without having to disclose their identity, which Fakher said was a significant part of the law.
Rights activist Waleed Abu al-Khair said the new law gave women some independence.
"Women were required to bring in a male relative if they showed up at a police station to file a complaint," Abu al-Khair said. This will not now be necessary, he said.
The law could be a step towards changing current regulations which require women to get approval of male guardians - fathers, husbands or sons - to carry out business, apply for jobs or travel outside the country, Abu al-Khair said.