The new alerts will warn of either an "imminent threat" or an "elevated threat" with a summary of the potential threat as well as an expiration date. They could be extended, but unlike the old system there will not be an over-arching warning.
"The terrorist threat facing our country has evolved significantly over the past ten years," Homeland Security Secretary Janet Napolitano said in a statement.
In February she warned the terrorism threat was at its greatest since 2001.
Several attacks have been either disrupted or uncovered in the past few years, including an attempt by al-Qaeda's affiliate in Yemen last year to detonate toner cartridges packed with explosives aboard US-bound cargo planes.
Potential geographic area
The colour-coded system adopted after the September 11 2001 attacks was ridiculed because it failed to provide specific information about potential threats and the levels have not changed since August 2006 despite numerous attempted attacks.
It has been set at orange, or "high" for the US aviation system - a popular target for al-Qaeda - and at yellow, or "elevated" for the rest of the country. Napolitano announced plans to scrap that warning system in January.
Under the new system, an "elevated" threat will include a credible threat of terrorism while an "imminent" threat would warn of a credible, specific and impending threat.
The new alerts will include the potential geographic area and the mode of transportation or critical infrastructure potentially targeted in the threat, the homeland security department said.
Some alerts may only go to law enforcement or those directly affected by the threat, rather than the public.
The alerts that are published will be done through the media as well as social networks like Facebook and Twitter.
The Obama administration has been slowly increasing the amount of information it has made public about threats, including warnings last year that anti-American militants may try to stuff explosives in insulated drink containers.
But other plots have gone much further.
A Pakistani-born man tried to detonate a car bomb in New York's Times Square a year ago, but the crude bomb failed to explode and a street vendor alerted authorities.
Further, a Saudi man studying in Texas was discovered earlier this year allegedly trying to build bombs that he could detonate in New York City as well as at former President George W Bush's Dallas home.
The plot was foiled after tips from a chemical supplier and a freight company.