Phillips, an accomplished equestrian, will marry longtime boyfriend Mike Tindall, the palace said.
No date has been set yet. Phillips is close friends with her cousin, Prince William, who plans to marry Middleton at Westminster Abbey on April 29. Their engagement was announced last month.
Phillips, 29, is 12th in line to the throne.
Tindall, 32, has played rugby for the English national team and was a member of the squad that won the 2003 World Cub. He now plays for the Gloucester club.
"The Queen and the Duke of Edinburgh are delighted with the news," the palace said in a statement. "They got engaged yesterday evening at the couple's home in Gloucestershire."
Phillips, the daughter of Princess Anne, has won medals in world equestrian championships and was once voted BBC sports personality of the year
-- as was her mother, who shares her loves of horses.
The marriage between Princess Anne and Phillips' father, Mark Phillips, ended in divorce in 1992. Princess Anne has since remarried.
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