The royal family will pay for the wedding, including the church service, the music, the flowers and the reception, the palace said.
The American actress, who will become a senior HRH on marrying into the royals, also intends to become a British citizen.
As the couple make preparations for their big day, Ms Markle, a protestant who went to a catholic high school, will be both baptised and confirmed, ready for the religious ceremony.
Harry’s communication’s secretary Jason Knauf said Windsor was a “very special place” for Harry, and that he and Ms Markle had spent time there together during their 16-month romance.
He said the couple were delighted to be holding the wedding in the “beautiful grounds of Windsor”.
Mr Knauf said the couple, who were grateful for the warm wishes from the public, would be putting their stamp on their wedding day.
“They will be making sure it reflects who they are as a couple,” he said.
Kensington Palace also revealed that Harry and Ms Markle will carry out their first official engagement together in Nottingham on Friday.
Mr Knauf revealed that while one of Ms Markle’s beloved dogs Guy was legally allowed to stay with her in the UK, the other - Bogart - would not be joining her.
“Bogart is now living with friends,” Mr Knauf revealed.
In Nottingham, the pair will visit the Nottingham Contemporary which is hosting a Terrence Higgins Trust World Aids Day charity fair, and also visit Nottingham Academy to meet head teachers taking part in the Full Effect programme.
There will also be a walkabout by the bride and groom-to-be - a royal rite of passage for the future royal.
Ms Markle is to become the fourth patron of the Royal Foundation of the Duke and Duchess of Cambridge and Prince Harry.
The actress will not be continuing her work on gender with the UN or with other organisations, but instead will starting her charity work as a full-time royal afresh.
The exact date of the wedding will be revealed a later stage.
Mr Knauf said Harry and Ms Markle “want the public to feel part of their day” - and are looking at ways to achieve that.