The Deferred Action for Childhood Arrivals (Daca) programme was introduced five years ago.
It guards some 800,000 so-called "Dreamers", mostly from Latin American countries, against deportation, giving them work and study permits.
But critics say it amounts to an amnesty for illegal immigrants.
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Daca revoked - what you need to know
US President Donald Trump took a hard line on immigration while campaigning for office last year and said he planned to "immediately terminate" Daca if elected.
However, since then he has said he finds the subject "very, very tough".
House Democratic leader Nancy Pelosi slammed Tuesday's decision, describing it as a "cruel act of political cowardice".
'We cannot admit everyone'
The attorney general said Daca would be rescinded with an "orderly wind down".
Reuters news agency quoted an unnamed official at the Department of Homeland Security as saying there would be a limited, six-month window for some Daca recipients to renew their work permits.
In a stinging attack on the policy introduced by President Barack Obama, Mr Sessions said: "Such an open-ended circumvention of immigration laws was an unconstitutional exercise of authority by the executive branch.
"The effect of this unilateral executive amnesty among other things contributed to a surge of minors at the southern border that yielded terrible humanitarian consequences. It also denied jobs to hundreds of thousands of Americans by allowing those same illegal aliens to take those jobs.
"The nation must set a limit on how many immigrants we admit each year. We cannot admit everyone who would like to come here, it's just that simple."
In a statement, Ms Pelosi said President Trump had dealt a "stunning blow to the bright young Dreamers and everyone who cherishes the American Dream".
She called on Republicans in Congress to join Democrats in immediately moving to safeguard Daca recipients.
What is Daca?
The programme protects young illegal immigrants in the US from deportation and provides temporary permits for work and study.
In order to qualify for Daca, applicants under the age of 30 submit personal information to the Department of Homeland Security.
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