Every person receiving Personal Independence Payments (PIP) will have their claim reviewed, the Department for Work and Pensions has said.
A total of 1.6 million of the main disability benefit claims will be reviewed, with around 220,000 people expected to receive more money.
It comes after the DWP decided not to challenge a court ruling that said changes to PIP were unfair to people with mental health conditions.
The review could cost £3.7bn by 2023.
The minister for disabled people, Sarah Newton, said the DWP was embarking on a "complex exercise and of considerable scale."
She added: "Whilst we will be working at pace to complete this exercise it is important that we get it right."
Ministers made changes to PIP in 2017 which limited the amount of support people with mental health conditions could receive.
As a result, people who were unable to travel independently on the grounds of psychological distress – as opposed to other conditions – were not entitled to the enhanced mobility rate of the benefit.
The government pressed ahead with the proposals, despite criticism from an independent tribunal in 2016.
But in December, a High Court judge ruled the alterations "blatantly discriminate" against people with psychiatric problems and were a breach of their human rights.
Last week, new Work and Pensions Secretary Esther McVey announced the government would not appeal against the judgement, despite not agreeing with certain aspects of it.
Mark Atkinson, chief executive at disability charity Scope, said more was needed to address the issues with PIP.
"While it's crucial that the government urgently identifies and pays the vast numbers of disabled people who lost out on this vital support, this will not address the root of the problem," he said.
"The fundamentally flawed PIP assessment needs a radical overhaul so it accurately identifies the extra costs disabled people face."