It said it would remove links to sites considered offensive by the Chinese government in exchange for allowing the firm to use computer servers located in China.
The company also said the new site would not host blogs or email as a way of avoiding legal problems with the authorities, who have employed sophisticated filters to block access to certain websites.
"In order to operate from China, we have removed some content from the search results available on Google.cn, in response to local law, regulation or policy," Google's senior policy counsel, Andrew McLaughlin, said in a statement.
"While removing search results is inconsistent with Google's mission, providing no information (or a heavily degraded user experience that amounts to no information) is more inconsistent with our mission."
The company said it had engaged in a long internal debate about how to achieve a balance between Chinese legal requirements and its publicly-stated mission to offer all possible information to everyone with access to the Internet.
In designing its Chinese search engine, Google gathered information on the types of web sites and phrases Beijing finds objectionable, based on information from third parties and by observing how China's Internet filtering devices operate.
Until now, Google has relied on its standard search site to reach Chinese Internet users. But without any servers based on the Chinese mainland and with government filters in place, the site was sluggish and plagued by delays.
As a result, the search engine had lost ground to Chinese and international competition and was particularly concerned about Baidu, a Mandarin search engine.
Google's competitor, Yahoo, has come under criticism from human right groups for cooperating with Chinese limits on Internet use. Yahoo was accused of providing information two years ago that allowed Beijing to prosecute a Chinese journalist.
Google also planned to alert Chinese users to censored materials by placing a short notice at the bottom of the search-results page but it was unclear if that precaution would satisfy the Chinese government.
China has devoted extensive efforts to policing the Internet and jailed dozens of dissidents who have published political criticism on the web, human rights groups say.
Authorities in recent years have closed Internet cafes, blocked emails, search engines, foreign news and politically-sensitive websites, including those criticizing the communist party or referring to Tibet, Taiwan and the Tiananmen Square massacre.
Google's decision came as a disappointment to rights activists and press freedom advocates, who had hoped the Mountain View, California firm would hold out against Beijing's restrictions.