The review will look at the overall purpose of the BBC, what services and content it should provide, how it should be funded and how it should be regulated and governed.
The BBC is governed by a Royal Charter, with the current charter due to expire in 2016.
The Green Paper is the first stage in setting the terms of a new charter. John Whittingdale, the Culture Secretary, told MPs in Parliament today that a decision must be made on whether the BBC should try to do "all things" or become more "precise".
He said: "We need to ask some hard questions... about what the BBC should be trying to achieve in an age where consumer choice is now far more extensive than it has been, what its scale and scope should be in the light of those aims, how far it affects others in television, radio and online, and what the right structures are for its governance and regulation."
He added that the BBC would spend £30bn of public money by the end of the current charter and that the review would be an opportunity for everyone to say "how well they think that money is spent".
However, the Government has put on hold plans to decriminalise the enforcement of TV licence collection following an independent review and the issue will now form part of the charter review process instead. The BBC said the review suggested "a much diminished, less popular, BBC".
In a statement, the corporation said: "That would be bad for Britain and would not be the BBC that the public has known and loved for over 90 years."