The improved agreement, which is in place immediately, includes match fees, win and performance bonuses and insurance cover.
The WRU believe the agreement forms the basis of a complete support system for the players during and after their rugby careers.
Chief executive Roger Lewis said: "We are delighted to have been able to achieve such a breakthrough agreement which is good for the players themselves and for the future of Welsh rugby.
"By agreeing to a structure which will be in place for the next four years we can focus on long-term planning and the sustainability and success of our game.
"The agreement will allow us to reward success and enable the players to benefit from the incredible effort they put in for their nation here at the Millennium Stadium and for Wales as they travel around the globe."
The players will reportedly earn Â£60,000 each if they win the Grand Slam next year, double what they received for doing it in 2005.
"We all structured our thinking to ensure the players get what they deserve and their continued success will continue to reap benefits which will help develop the game from the elite level to the grass roots in Wales," added Lewis.
"A winning Wales generates the funding to fuel the game throughout Wales."
Welsh rugby has been hit financially in recent years and the squad missed their flight out to Australia for the 2003 World Cup after failing to agree a pay deal.
There was no suggestion of strike action on this occasion but the players were anxious to get a deal in place before the warm-up Tests begin against England at Twickenham on August 4.
The financial issues were reportedly agreed some time ago, with the sticking point the length of deal but a compromise has now been reached.
Welsh Rugby Players' Association chief executive Richard Harry said: "The negotiations with the WRU were conducted positively and professionally and have resulted in an agreement that reflects the huge effort that the players put in to their time with Team Wales, whilst providing rewards for success.
"Our discussions have also allowed us to consider the game in a wider context and I am looking forward to working with Roger Lewis and his team on creating the best possible environment for our players in Wales."