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The prohibition on transgender individuals serving in the U.S. military "continually should be reviewed," Defense Secretary Chuck Hagel said Sunday.
Hagel did not indicate whether he believes the policy should be overturned.
However, he said: "every qualified American who wants to serve our country should have an opportunity if they fit the qualifications and can do it."
A transgender individual is someone who has acquired the physical characteristics of the opposite sex or presents themselves in a way that does not correspond with their sex at birth.
A panel convened by a think tank at San Francisco State University recently estimated that about 15,450 transgender personnel serve in the military and in the National Guard and Reserve.
In 2010, Congress passed legislation allowing gays and lesbians to serve openly.
Hagel said the issue of transgender serving in the military is more complicated. He said "these issues require medical attention" that at times cannot be provided in austere locations.
The National Center for Transgender Equality said it welcomed Hagel's comments, which were made on ABC's "This Week."