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.

The 29-year-old was released by Preston in December and joined Scottish Championship side Hibernian, but was out of contract this summer.
His previous clubs include Shrewsbury and Motherwell, with his deal including the option of a further 12 months.
Meanwhile, Bury goalkeeper Ben Williams, 34, has left the club after making 21 appearances last season.
The former Crewe and Colchester man joined the Shakers from Bradford last summer.
Find all the latest football transfers on our dedicated page.

The 22-year-old joined Tigers in January 2016 from Bristol, initially on loan before making the move permanent ahead of this season.
"Leicester Tigers is a club with a lot of success and a big history," Genge told the club's website.
"I feel I have come on a lot since I joined the club, learning all the time working with people like Marcos Ayerza, Dan Cole and now Boris Stankovich."
He added: "I just want to play rugby and I am enjoying it at Tigers. It's great to play at Welford Road with crowds over 20,000 every week."
Capped by England in the end-of-season game against Wales last year, he was included in the 2017 Six Nations squad and has been named in the tour party for this summer's two-Test trip to Argentina.
Leicester, who face Sale Sharks at Welford Road on Saturday, have not confirmed the length of Genge's new deal.
Hourly pay rates for Tesco store staff will rise by 10.5% over the next two years, the supermarket has said.
[NEXT_CONCEPT]
League One club Bury have signed Jamaica international winger Chris Humphrey on a one-year deal.
[NEXT_CONCEPT]
England prop Ellis Genge has agreed a new contract with Leicester Tigers.