The new rule comes into force at the start of the 2006-07 season with four home-grown players in the squads for Champions League and UEFA Cup matches, rising to six in 2007-08 and eight the season after.
Half the quota should be trained by the club and the others can come from a club academy in the same country.
The ruling does not apply to domestic competitions, although UEFA is encouraging members to adopt the rule.
It is designed to redress the balance in terms of clubs fielding locally developed players, preventing the bigger clubs simply ‘hoarding’ players as well as buying success.
A declaration issued by UEFA said: "UEFA recognises that finance plays an important part in football today. But football should not be a mere financial contest. It should above all be a sporting contest. This sporting element means that every club must accept some responsibility for training, and not rely solely on acquiring those players who were trained by others.
"Training should be encouraged in every national member association of UEFA. This will, in turn, help to provide a pool of playing talent in every European country and can also help to increase the quality of, and competition between, national teams."
A difficulty has been introducing a system that did not conflict with the EU's eligibility law as there are no restrictions on player movement in Europe.
A young player of any nationality can be developed between the ages of 15 and 21 for three years as a junior and be eligible as a home-grown player.
