The Home Secretary admitted "the state has let people down" after the scandal over the threat to deport thousands of Caribbean migrants who have been in Britain for decades.
Ms Rudd told the House of Commons fees for any children of the Windrush generation who need to apply for naturalisation and charges associated with returning to the UK for people who have retired to their countries of origin after making their lives here would also be waived.
She said that successive governments have introduced measures to combat illegal immigration since the 1980s.
She emphasised her commitment to tackling illegal immigration but admitted that these steps have had an "unintended and sometimes devastating" impact on people from the Windrush generation who are here legally but have struggled to get documentation to prove their status.
Shadow home secretary Diane Abbott branded the incident "one of the biggest scandals in the administration of home affairs".
Speaking in the Commons Ms Abbott personally blamed the Home Secretary for the Windrush scandal, telling her that "she allowed it to happen".
She said: "These cases can't come as surprise to her because for some time many of my colleagues on this side of the House have been pursuing individual cases.
"She is behaving as if it is a shock to her that officials are implementing regulations in the way she intended them to be implemented."
Ms Abbott drew cheers from the Labour benches after telling Ms Rudd "ultimately the buck stops with her".
Ms Rudd hit back at Ms Abbott, telling her that the Government's admiration for the Windrush generation "remains undimmed".
She said: "This is a group of people who should have had their legal status formally given to them a long time ago.
"She will have seen as I did that some of the references of the individuals who have been so heartbreakingly let down did happen before 2010.
"This is not something that has just happened overnight."
She added: "The steps that I am putting in place now are going to make sure that they have the formal status that they should have had a long, long time ago."