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UBS gave US authorities details of 300 American clients last monthSwitzerland, the world's largest offshore financial centre, has agreed to accept concessions on bank secrecy.
However, while it will now abide by international rules on bank data sharing, it said it would only respond to "concrete and justified" requests.
The government added that it would still protect banking customers from "unjustified watching from abroad".
Switzerland's announcement comes after it had risked being added to a global blacklist of uncooperative tax havens.
It is estimated that Switzerland's banks hold $2 trillion (£1.4tn) of global wealth held abroad.
OECD talks
It reached its agreement overnight with the Organisation for Economic Co-operation and Development (OECD), which sets rules on the sharing of bank data to try and crack down on offshore tax evasion.
This is the first time it has agreed to sign up to the OECD rules, having previously stated that it would compromise its long-standing banking secrecy principles.
Andorra, Liechtenstein, Austria and Luxembourg have also just agreed to sign up to the OECD rules.
All had come under increasing pressure to reform their banking sectors.
Andorra and Liechtenstein, along with Monaco, are currently on the OECD blacklist of "uncooperative tax havens".
Key global meeting
The agreements were announced ahead of a meeting of finance ministers and central bank governors from the G20 group of industrialised nations, which is being held near London.
TAX EVASION v TAX FRAUD Switzerland is unusual is distinguishing between tax evasion and tax fraud
Tax evasion is the deliberate concealing of assets
Tax fraud, in addition, involves lying on official documents
Both are criminal offences in most countries, but tax evasion is only a civil matter in Switzerland
The meeting is expected to focus on the need for tougher regulation of banks, and discuss increasing funding to tackle the crisis.
UK Prime Minister Gordon Brown said the changes were "the beginning of the end of tax havens".
"Tax evasion, which costs the global economy billions of pounds each year, will become more difficult in future."
The Swiss government said in a statement that any exchange of banking information with other countries would be done on a "case by case" basis.
Switzerland was "maintaining banking secrecy and resolutely refused all automatic transmission of information", it said.
"The private sphere of clients is still protected from unjustified watching from abroad," it added.
Tax evasion change
The Swiss government confirmed that in line with OECD rules, it would now respond to overseas requests for information in cases of suspected tax evasion, and not just tax fraud.
WHAT IS A TAX HAVEN? Low or no taxation
Lack of transparency
Refusal to provide information to foreign tax authorities
Andorra, Liechtenstein, and Monaco classed as "uncooperative tax havens"
Source: OECD
The main difference between tax evasion and tax fraud is that the former is the deliberate concealing of assets, while the later also involves lying on official documentation.
Unlike most countries, tax evasion is a civil offence in Switzerland. Only tax fraud is a criminal matter.
Imogen Foulkes, the BBC's Geneva correspondent, said "the Swiss government has finally bowed to intense pressure from Washington and Brussels".
"The decision is all about damage limitation - Swiss banks may well lose yet more wealthy international clients, but the government hopes its new willingness to cooperate in cases of tax evasion will lift the threat of the black list," she said.
"It's a small but very important change in Swiss banking regulations - and a little piece of Swiss tradition is now history."
UBS row
The Swiss government's acceptance of OECD rules comes as UBS, the country's largest bank, is in dispute with US authorities.
US officials are continuing to demand that UBS hands over the details of 52,000 American account holders it suspects of tax fraud.
While UBS has given the US details of 300 American account holders, it has so far rejected a request to hand over details of all 52,000.
The Swiss government said on Friday that it was in the process of drafting a legal statement to clarify its position regarding a civil case brought by US authorities against UBS.
Switzerland said it would be drafting an "amicus curiae" or third-party statement to put forward its position in the matter. It said it wished to give "added emphasis to Switzerland's sovereign interests". It is estimated that the US government loses $100bn in revenues every year because of tax havens.
http://news.bbc.co.uk/2/hi/business/7941717.stm