The royalty rate for lithium is currently set at 5%, but will be capped to allow for downstream processing.
A 5% feedstock royalty rate for lithium hydroxide and lithium carbonate, where those are the first products sold and the feedstock is spodumene concentrate, will be introduced as soon as practicable.
The review into lithium royalties, part of the government's Future Battery Industry Strategy, involved industry consultation.
WA mines and petroleum minister Bill Johnston said the government was committed to supporting the state's battery materials industry.
"Updating the royalty arrangements provides a fairer system for all lithium producers and will enable Western Australia to move up the battery value chain beyond mining and processing," he said.
"Western Australia is increasingly becoming an internationally attractive destination for downstream processing and manufacturing of lithium and other battery minerals."
The Association of Mining and Exploration Companies welcomed the news.
"Today's royalty rate announcement helps Western Australia compete internationally to lock its place in the global lithium value chain," AMEC CEO Warren Pearce said.
"Defining the royalty provides certainty for companies investing in Western Australia and will support the financing of projects and further investment."