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."

Jordan believes the 84-year-old, who has been in charge since 1978, should allow "somebody radical" to take over.
F1 owners CVC Capital Partners and RSE Ventures, working with investors from Qatar, are in talks about a takeover of the sport.
"I think he's done a remarkable job but time has played its role and he should go," Jordan told BBC Radio 5 live.
"We need to leave it for the next generation in a better state. He has to keep asking himself that and where the timeframe is for him to leave. I think it's now."
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RSE Ventures is headed by Stephen Ross, the owner of NFL franchise Miami Dolphins. They are planning a bid for CVC's 35.5% controlling stake in the holding company that owns F1.
Ecclestone's position at the head of F1's commercial arm has come under scrutiny in the past year - he fought bribery charges in Germany while there have been concerns that the sport is losing its appeal.
While acknowledging how Ecclestone had grown F1, Jordan welcomed the possibility of new people running a sport which is "going through a bit of a dip".
He added: "The man is a legend. He has taken the sport from absolutely nowhere but, at the end of the day, he's not immortal. He may think he is but he's not.
"There are times you have to say 'look, I've done everything that I can do'.
"It does need somebody radical in there who is going to really shake it all about and go back to basics."
Max Mosley, the former president of motorsport's governing body the FIA, told 5 live on Wednesday that Ecclestone's role "won't change" if a takeover of F1 is completed.

Barry Imray, 35, of no fixed address, is jointly accused of killing Lee Irving, who was found dead near a footpath in Newcastle last year.
James Wheatley, 29, from Studdon Walk, also denies Mr Irving's murder.
Mr Wheatley's mother, Julie Mills, 51, and his girlfriend, Nicole Lawrence, 22, are accused of "causing or allowing" Mr Irving's death. All four deny the charges against them.
Mr Imray told Newcastle Crown Court he had seen Mr Irving with facial injuries a week before his death.
When asked by his defence counsel how he felt on finding the 24-year-old apparently lifeless a week later at the house they shared in Kenton Bar, he said he had been "scared".
Jamie Hill QC asked Mr Imray if he had "done anything" to Mr Irving, such as hitting him or kicking him, to which he said no.
It is alleged Mr Irving, who had learning difficulties, had been sedated by the defendants, rather than taken for medical treatment.
The court heard how he had been found about half a mile from the house with 27 rib fractures and a broken nose and jaw.
The trial continues.
Amazon is entering the handicraft market with the launch of a new online store for handmade goods.
[NEXT_CONCEPT]
Bernie Ecclestone should step down as Formula 1 supremo, says BBC chief F1 pundit Eddie Jordan.
[NEXT_CONCEPT]
A man accused of murder has told a court he is "easily led".