Police watchdog the Independent Police Complaints Commission (IPCC) said serving and former officers would be investigated over what happened on the day of the tragedy in 1989 and during the alleged cover-up afterwards.
These include the current Chief Constable of West Yorkshire Police, Sir Norman Bettison, who has been accused of supplying misleading information after the disaster and trying to influence the local police authority when he was referred to the IPCC.
Director of Public Prosecutions Keir Starmer said he would also look at whether any individual or corporate body should be charged over the football stadium disaster, which left 96 people dead.
The announcement was welcomed by relatives of the 96 victims as well as public figures in Liverpool.
Margaret Aspinall, who lost her 18-year-old son James in the tragedy, and is chairwoman of the Hillsborough Families Support Group, said: "Obviously they are going to look back at all the serving policemen on that day, and I think that is a great thing to do because there were so many involved as part of that cover-up."
A report by the Hillsborough Independent Panel published last month claimed that a shocking cover-up was staged in order to shift blame onto the 96 victims.
It alleged that 164 police statements were altered in the wake of the tragedy, 116 of them to remove or change negative comments about the policing of the match and the ensuing disaster.
Questions have also been raised over whether manslaughter charges should be brought over the deaths, which happened at a FA Cup semi-final at the Sheffield stadium between Liverpool and Nottingham Forest.
Chief Constable Michael Cunningham from the Association of Chief Police Officers pledged that the police service would co-operate fully with the investigations.
The deputy chairwoman of the IPCC, Deborah Glass, told reporters that "without a shadow of a doubt" the probe would be the biggest ever investigation carried out into police behaviour in the UK.
"I think I can confidently say this will be the largest independent inquiry that has been launched into the actions of the police in the United Kingdom," she said.
Ms Glass went on: "The potential criminal and misconduct offences disclosed by the panel's report fall into two broad categories.
"They are the allegations that go to the heart of what happened at Hillsborough in April 1989, and individuals and institutions may be culpable for the deaths. And there are allegations about what happened after the disaster, that evidence was fabricated and misinformation was spread in an attempt to shift blame."
Allegations that statements were altered and that misleading information was passed to the media and MPs will be investigated and could lead to police misconduct and criminal charges, Ms Glass said.
Claims that officers questioned bereaved next-of-kin about their loved ones' alcohol consumption, carried out alcohol testing and checked the police national computer to find information about the dead and injured could also result in charges.
Both South Yorkshire Police, which dealt with the tragedy, and West Midlands Police, which investigated how South Yorkshire handled the disaster, will come under scrutiny.
Welcoming the probe, Chief Constable of West Midlands Police Chris Sims said: "As chief constable I read the Hillsborough Independent Panel Report and immediately referred West Midlands Police to the IPCC.
"Today [Saturday], the IPCC have accepted that referral and West Midlands Police will give their full support to the IPCC investigation."
South Yorkshire Police said they would continue to co-operate with the inquiry..
A spokesman said: "The force will continue to co-operate fully with any judicial processes, as shown by the full co-operation with the Panel during the three-year disclosure process.
"Chief Constable David Crompton has already stated in a letter to family members that he will not oppose any application for a new inquest."
It is up to the Attorney General to apply to the High Court to have the existing verdicts of accidental death quashed and new inquests held.