The Health Secretary has agreed to dissolve the scandal-hit Mid Staffordshire NHS Foundation Trust.
Jeremy Hunt had the final say on plans to dissolve the trust and move key services to neighbouring hospitals.
In January, the health watchdog, Monitor, approved plans drawn up by administrators to downgrade some services at Stafford Hospital, despite opposition from local campaigners.
Under today's announcement, Stafford could still retain consultant-led maternity services after Mr Hunt agreed for NHS England to carry out a review into the issue.
The original plan from administrators had been for maternity services to close, but this was later amended to the creation of a midwife-led unit.
Mr Hunt has now agreed a review of that decision to see whether consultant-led services - needed for more difficult births - should be retained.
Mid Staffordshire was the focus of one of the biggest scandals in the history of the NHS when hundreds more people died than would normally be expected.
The Francis Inquiry last year highlighted the "appalling and unnecessary suffering of hundreds of people", with some patients left lying in their own faeces for days, forced to drink water from vases or given the wrong medication.
That followed a 2009 investigation by the Healthcare Commission which found between 400 and 1,200 more people died at Stafford Hospital than would have been expected.
In December, trust special administrators said the overall trust was "unsustainable" and that without changes Mid Staffordshire would face annual debts of more than £40 million by 2017.
In a written ministerial statement, Mr Hunt said: " Local people suffered too much for too long under a system which ignored appalling failures of care in their local hospital.
"They now deserve to know that same system has learned the lessons and is guaranteeing high-quality, safe services for local people.
"The proposals I am accepting today will provide just this."
Overall control of Stafford Hospital will now to go to the University Hospital of North Staffordshire while Cannock Hospital will be run by Royal Wolverhampton Trust.
Paediatric assessment will still take place at Stafford Hospital by specialist staff, in conjunction with A&E, and critical patients will be allowed to stay overnight in Stafford as long as the appropriate staff are on duty.
The plans would mean the hospital would keep its current limited-hours A&E department. The hospital would lose in-patient paediatrics.
Mr Hunt said the Department of Health had had to provide over £20m in subsidy funding to the trust in 2012 and 2013.
He said: "At the same time, a number of services are being operated with consultant numbers below Royal College guidelines, and the trust has experienced ongoing challenges in recruiting and retaining staff. Patients deserve high quality services, which are clinically sustainable.
"Today's announcement provides an assurance that the solution to the trusts' financial and clinical problems will deliver safe and high quality services, now and into the future."
Mr Hunt said 90% of patient visits will continue locally, with a "minority of services eventually being moved to neighbouring hospitals once the local NHS is satisfied there is sufficient capacity".
He added: "I want Stafford to be a proper district hospital that continues to meet the needs of patients nearby, including for emergency care and births."
Sue Hawkins, of campaign group Support Stafford Hospital, said of the proposal to keep consultant-led maternity services: "Well, it's something - it's a start.
"What I would say is that you can apply equally the same argument of patient safety used to justify that re-think to paediatric care, so we would ask for the downgrade of paediatrics to be re-considered as well."
She added campaigners would "go away and consider the announcement", and think on their next move adding they were not ruling anything out.
"We don't need to do a knee-jerk reaction - that would be the worst thing we could do, we need to go away and sit and think about what is needed," she said.
"We need to listen to the community."
Asked if the group would consider any legal challenge, she said while campaigners were "not shutting any doors" resorting to the courts could do more harm than good to keeping key services at the hospital.
"The problem is that if you went to a judicial review for example - and there might not be grounds - but if you did, you increase the period of uncertainty," said Mrs Hawkins.
"The hospital has already come to its knees because of that uncertainty.
"So if you increase uncertainty, will we lose then more staff (from the hospital)?
"After two and a bit years of protest, that has led to staff jumping ship, and you can understand that, they've got families and mortgages to pay for."
She said Mid Staffordshire had become "one of the safest trusts" because of the increased scrutiny placed upon it, following the Francis report.
Christina McAnea, head of health for Unison, said: " It is bitterly disappointing for the local community who have campaigned for local services and have rallied behind the hospital, as well as for staff who have worked hard to turn the trust around.
"The facts show that patient care has improved massively and the staff survey, released only yesterday, showed that 73% would now be happy with the standard of care at the hospital if a friend or relative needed treatment - higher than the 65% national average.
"If key services are to be transferred to neighbouring trusts, it is vital that they are given the financial resources needed to take on the extra responsibility. It is also crucial that robust clinical assessments have been made to ensure that the people of Mid Staffs are able to access safe, appropriate healthcare when they need it."
Philip Atkins, leader of Staffordshire County Council, said: "The decision to dissolve Mid Staffordshire NHS Trust means it is absolutely crucial that all partners involved in the NHS now pull together and deliver what is best for the people of Staffordshire.
"While this will undoubtedly be a bitter blow for campaigners, it is also an opportunity to show how the county can now lead the way in demonstrating how integrated hospital and community care can be both delivered safely and meet the highest standards.
"The trust, as it stood, was both financially and clinically unstable, and as a county council we have always recognised the difficult challenge facing the trust special administrators, and I think they have acknowledged this too.
"There are still significant concerns over the financial fragility of the whole Staffordshire health economy and the wider impact this decision will have, especially as only last week Staffordshire was identified as one of 11 financially challenged health economies."
Maggie Oldham, chief executive of Mid Staffordshire NHS Foundation Trust, said: " I hope that today's announcement by the Secretary of State will give staff assurance that they have a part to play in the future of health services for patients in Staffordshire.
"I would like to pay tribute to all the staff at our hospitals who continue to focus on delivering safe and compassionate care for our patients, despite the difficulties and uncertainty they have faced.
"Mid Staffs has come a long way over the past few years and I am very proud of all of our staff and what they have achieved.
"I would also like to remind patients that we are still working as usual and that they should please keep their appointments and keep using the services provided at Stafford and Cannock Chase Hospitals."
Jan Sensier, chief executive of Engaging Communities Staffordshire, which delivers the local Healthwatch programme, said: "Mr Hunt's decision will lead to a major change in the way services are run at both Stafford and Cannock and we want to make sure that, at the heart of everything, is safe and quality care for patients.
"It will now be more important than ever for us to engage with both public and staff to ensure the plans are implemented successfully and that things run smoothly.
"This announcement should be the start, rather than the end, for both commissioners and healthcare leaders.
"It's a chance for all key stakeholders to engage with the public and ensure we get the best possible outcome for the people of Stafford, who certainly deserve that after all they have been through."
Alan Bloom, trust special administrator for Mid Staffs, said: "We aim to transfer the management of Stafford and Cannock Chase hospitals to the University Hospital of North Staffordshire NHS Trust and The Royal Wolverhampton NHS Trust as early as possible.
"This prompt transfer is necessary to help to address the significant challenges currently faced by Mid Staffordshire NHS Foundation Trust, especially those challenges faced around recruitment and retention.
"We believe that a prompt transfer is likely to reduce uncertainty for patients, local people and staff."