Significantly, Windows 365 delivers "the full Windows experience," according to Microsoft.
Unlike some hosted desktop systems, Windows 365 preserves apps, data and settings across settings so users get the familiar personalised experience.
It can be used via a web browser or a Remote Desktop client.
"With Windows 365, we're creating a new category: the cloud PC," said Microsoft chairman and CEO Satya Nadella.
"Just like applications were brought to the cloud with SaaS, we are now bringing the operating system to the cloud, providing organisations with greater flexibility and a secure way to empower their workforce to be more productive and connected, regardless of location."
Windows 365 is part of Microsoft's response to hybrid working.
"Hybrid work has fundamentally changed the role of technology in organisations today," said Microsoft corporate vice president for Microsoft 365 Jared Spataro.
"With workforces more disparate than ever before, organisations need a new way to deliver a great productivity experience with increased versatility, simplicity and security. Cloud PC is an exciting new category of hybrid personal computing that turns any device into a personalised, productive and secure digital workspace. Today's announcement of Windows 365 is just the beginning of what will be possible as we blur the lines between the device and the cloud."
Windows 365 also addresses issues that were already apparent before the pandemic hit.
It stores data centrally, reducing the risk associated with lost or stolen devices.
It allows temporary or seasonal workers access to corporate systems without having to provide them with new hardware or putting them through security hoops before allowing them to use their own devices.
It makes it easier to provide people in creative, analytics, engineering or scientific roles with the compute power and applications that they need.
Administrators aren't faced with learning how to use new management tools, as cloud PCs can be managed through Microsoft Endpoint Manager.
SMEs can purchase Windows 365 directly or through a cloud service provider, and may choose to engage systems integrators or managed service providers to help them deploy and operate it.
Azure Virtual Desktop remains available for organisations that require greater customisation and flexibility.