As a result, people involved in putting combustible cladding on the tower as part of a redevelopment of the housing block will be able to give oral evidence to the inquiry without incriminating themselves.
"The undertaking I am providing to the Inquiry means it can continue to take evidence from witnesses who otherwise would likely refuse to answer questions," Attorney General Suella Braverman said in a statement on Wednesday.
"These questions are important to finding out the truth about the circumstances of the fire. The undertaking will not jeopardise the police investigation or prospects of a future criminal prosecution."
The 23-storey tower, owned by the wealthy borough of Kensington and Chelsea, was destroyed in June 2017 in the worst fire in a residential building in Britain since World War 2.
Contractors involved in the refurbishment had been due to start testifying earlier this month but that was postponed after some of them made a request for a guarantee that nothing they told the inquiry could be used to prosecute them.
The government said that while the undertaking meant oral evidence couldn't be used against individuals in criminal proceedings, it didn't prevent the evidence being used against corporations in a future prosecution.
However, Grenfell United, a group which represents the bereaved and survivors of the fire, said that the decision made them "nervous".
"Truth at the inquiry must not come at the expense of justice and prosecutions. For our continued participation, the government must make sure the inquiry process does not undermine prosecutions," the group said in a statement.
"Grenfell was a tragedy but it was not an accident. The people responsible for knowingly encasing our families in a death trap and the people that allowed them to do it must face the full force of the law.
"We expect criminal prosecutions at the end of this and will not settle for anything less."
