But pay remains lower than at Aldi and Lidl and overtime pay on Sundays and Bank Holidays is being cut.
Currently Tesco workers are paid £7.62 an hour, which will rise to £8.42 an hour by November 2018.
The pay rise will put Tesco workers' pay above the £7.90 level that the National Living Wage is expected to reach by 2018.
The National Living Wage is the effective minimum wage for adults aged 25 and over, and is currently £7.50.
Those under the age of 25 are entitled to a lower minimum wage rate.
Statutory minimum pay rates will continue to rise until at least 2020, according to recent government Budgets, and companies are planning for those changes, as well as striving to remain competitive with rivals in order to recruit and retain staff.
Wage growth in the UK has been slow in recent years, but inflation has risen and other supermarkets have increased the wages they pay.
Aldi recently announced a rise in hourly pay to £8.53 an hour; Lidl's website says it pays store staff £8.45 an hour.
Tesco said it would increase hourly pay in three stages: to £8.02 in November 2017, then to £8.18 in July 2018 and to £8.42 in November 2018.
"This reward package sees our biggest investment in store pay for a decade, and gives colleagues a sustainable pay deal that rewards them for everything they do, while allowing us to also attract new talent," said Tesco UK chief executive, Matt Davies.
The retailer said maternity pay terms had also been improved. But extra pay for Sundays and bank holidays will be reduced from time-and-a-half to time-and-a-quarter after July 2018.
"This is designed to meet the government legislative requirement around the minimum wage.
"As expected, most of the businesses who have had to face up to this rise have had to reduce premiums and other perks that employees benefitted from in order to meet the core wage rises," said retail analyst Steve Dresser.
Hourly pay rates for Tesco store staff will rise by 10.5% over the next two years, the supermarket has said.