The old category will be replaced with one listing "adult services," and a fee will be charged, the company said. Employees will monitor every posting before it appears online - a precaution the site has been criticized for refusing to take in the past.
Pressure to remove the category increased this spring after a Boston medical student was charged with killing a masseuse who authorities say he met through Craigslist.
The move also comes two months after Cook County Sheriff Tom Dart filed a lawsuit alleging Craigslist not only allows the solicitation of prostitution but had created what he called the "largest source of prostitution in America."
Craigslist CEO Jim Buckmaster said the agreement preserves a place "for legal businesses to advertise" while incorporating feedback from attorneys general, free speech advocates, law enforcement, Internet law experts and millions of Americans who use the site.
Craigslist officials and attorneys general from Illinois, Connecticut and Missouri met last week to seek an end to the ads.
"Craigslist's erotic services section had become nothing more than an Internet brothel," Illinois Attorney General Lisa Madigan said. The erotic services ads will expire in seven days, the Web site and Madigan's office said.
Madigan said authorities will closely monitor the ads that go up on the new section.
Madigan told reporters the changes would put a dent in prostitution, but acknowledged the changes will also drive prostitution solicitations to other platforms. She said authorities will monitor those, too.
Craigslist attorney Eric Brandfonbrener, appearing in federal court for a hearing on Dart's lawsuit, told U.S. District Judge John Grady that the site is undergoing changes he expects to satisfy the suit's concerns.
"My expectation is that it will be moot," Brandfonbrener told the judge.
Dart attorney Daniel Gallagher said he remained skeptical, saying Craigslist made similar promises before to the attorneys general.
Gallagher noted that Connecticut Attorney General Richard Blumenthal had brokered an agreement with the site in November to crack down on prostitution ads after being contacted about several complaints about photographs depicting nudity.
"I'm not going to take their word for it, we want to see action," Gallagher said.
Blumenthal sounded equally skeptical.
"Closing the erotic services section - a blatant Internet brothel - should lead to other blocking and screening measures, and set a model for other sites, if Craigslist keeps its word," he said in a statement.