Ms Gillard did not release the terms of reference but said the inquiry will include children in the care of religious organisations, state care and not-for-profit bodies.
Demand for a Royal Commission has built in recent weeks as a series of reports on abuse within the Catholic Church and allegations of systemic cover-ups come to light.
While the Catholic Church was not explicitly mentioned by Ms Gillard yesterday, this Royal Commission provides an opportunity for the Church to free itself from the dark aspects of its past to again concentrate on the good it does within society.
Victoria and New South Wales are already conducting their own investigations but as evidence mounts that paedophile priests were moved around the country to cover up their abhorrent behaviour, only a national investigation will piece the jigsaw together.
The nation's most senior Catholic Cardinal George Pell on the weekend resisted the call for a Royal Commission believing the Church, having already apologised, had done enough to atone for its sins.
He said the behaviour was historical and the Church had mended its ways. This is an unsympathetic view from Cardinal Pell.
The Catholic Church, along with other denominations, should support measures to find out what happened within their walls and understand the impact on victims.
Eventually, Ms Gillard could not resist the calls for a Royal Commission because political leaders from all sides lent their voices in support of a full and frank inquiry.
Significantly, one of those was Opposition Leader Tony Abbott, who studied in his youth to become a priest.
A Royal Commission would also give the many victims a chance to tell their stories.
In many cases these people have been silenced all their lives, too intimidated by the Church and the prospect of facing the legal system to venture into the spotlight.
A Royal Commission, in the same way as the Mullighan Commission in South Australia did, would be a appropriate forum for victims to finally tell their stories.
A Royal Commission is the best way forward for the Catholic Church and other institutions which have had their reputations damaged by the scourge of child abuse.
The Church needs to free itself from the shackles of the past, address its problems fearlessly and again concentrate on its strengths in religious leadership, pastoral care and charity.