Handmade at Amazon is currently invitation-only, with an initial 5,000 sellers on the site.
Goods must be "factory-free", with items such as wooden cufflinks and handstitched baby bibs already on sale from around the world.
Its competitor, artisan website Etsy, was valued at $1.8bn (Â£1.2bn) when it launched on the stock market in April.
"We had thousands of searches every day from customers looking for handmade or handcrafted items,'' said Peter Faricy, vice-president for Amazon Marketplace.
"Knowing an item has a unique story behind it creates a personal experience that customers have told us makes owning handmade items special."
The firm will initially take a 12% sales fee from its handmade retailers with no other charges.
Etsy, which was founded 10 years ago, takes a 3.5% sales fee from its 1.5 million sellers and also charges a listing fee of $0.20 per item.
The firm's chief executive, Chad Dickerson, told the Associated Press that almost half of the site's sellers already used other retail outlets in addition to Etsy but that the site was still "usually" their main source of income.
"We believe that Etsy is the best platform for the creative entrepreneur," he said.
"Etsy has a decade of experience understanding the needs of artists and sellers and supporting them in ways that no other marketplace can."
Amazon is entering the handicraft market with the launch of a new online store for handmade goods.