Tindall proposed to his 29-year-old partner last night at their Gloucestershire home and the Queen and Duke of Edinburgh are said to be "delighted" by the news, a Palace spokeswoman said.
The couple met in a Sydney bar during the 2003 Rugby World Cup through Zara's cousin Prince Harry.
Their friendship blossomed into a romance and Tindall, 32, has claimed that it was his "pure charm" that won the royal's heart.
A Palace spokeswoman said: "The Queen and the Duke of Edinburgh are delighted with the news.
"They got engaged yesterday evening at the couple's home in Gloucestershire and a date has yet to be set."
The Queen's granddaughter is one of Britain's top equestrians and a former world three-day eventing champion.
While her husband-to-be, who plays for club side Gloucester, has been capped 66 times by his country and was part of the England team that won the 2003 Rugby World Cup.
The news that Zara is to wed her boyfriend comes soon after the engagement of Prince William and Kate Middleton last month.
The couple have not yet set a date but it seems likely they will tie the knot in 2011 - setting up the prospect of two royal weddings next year.
In August 2009, Tindall admitted it was not about whether they would wed, but when.
He told Hello! magazine that there was "no doubt" he loved Zara and that he would like to have children.
But he said the time had to be right for them to walk down the aisle.
Tindall revealed: "I don't think it is about whether we will get married but when."
He added: "Yes, it probably would be a white wedding - although sometimes I can see the attraction of sneaking away without telling anyone."
The couple could opt for St George's Chapel at Windsor Castle for their wedding - the venue chosen by Zara's brother Peter when he married his wife Autumn in 2008.
And they are likely to pick a date far removed from William and Kate's wedding day, April 29.
A Buckingham Palace statement said: "The Princess Royal and Captain Mark Phillips are pleased to announce the engagement of their daughter Zara Phillips to Mr Mike Tindall, son of Mr Phillip and Mrs Linda Tindall."