Professor Marianne Hester, one of the country’s leading experts in gender-based violence, will lead the project over the next year.
It follows the Home Affairs Select Committee's report on prostitution and will create an impartial evidence base covering the nature and prevalence of sex work in England and Wales.
The research will help support law enforcement and Government efforts to protect vulnerable people by assessing the different types of prostitution - such as on-street, off-street and online – its extent in England and Wales, and any possible links to trafficking for the purposes of sex work.
Professor Hester, who is part of the Centre for Gender and Violence Research in the School for Policy Studies, said: "We look forward to working with the Home Office and the Office of the Police and Crime Commissioner in Wales to carry out this important new research into the contemporary nature and measurement of prostitution and sex work.
"We will also be linking with academics, non-government organisations and a range of agencies to ensure that the research reflects wider experiences and expertise."
The research will be carried out over the next year with the University engaging with a range of groups including sex workers themselves, other academics, law enforcement and healthcare providers.
Minister for Crime, Vulnerability and Safeguarding, Victoria Atkins said: "Our priority is to tackle the harm and exploitation that can be associated with prostitution and sex work, which is why it is so vital we have robust and impartial evidence to work from.
"The University of Bristol's experience will help us build up a clear picture of its nature and prevalence and it forms one part of our work to make sure law enforcement have the right tools and guidance to help keep vulnerable people safe."
Formally commissioned by the Office of the Police and Crime Commissioner for South Wales, the award follows an open tender process, during which researchers and academics were asked to submit proposals for developing a comprehensive understanding of contemporary prostitution and sex work.
Deputy Police & Crime Commissioner for South Wales, Emma Wools said: "In 2016, following the Home Affairs Select Committee report on prostitution, the Government accepted that there was a need for further research on the nature and prevalence of prostitution in England and Wales - something we had already recognised here in South Wales.
"It is clear that prostitution is evolving and it has never been more complex or multi-faceted than it is at this moment. We have worked closely with the Home Office to commission research to better inform understanding about prostitution and we are delighted that today, the Home Office has formally announced that the University of Bristol will be undertaking this research."