The live captions and subtitles will be "fast, continuous, and contextually updated as people speak," said the software giant.
The feature is available for users who have updated to the latest version of Skype, and works in both one-to-one and group calls.
While the feature will only support English at launch, over 20 other languages and dialects will be supported in the coming weeks.
Skype also said that the ability to manually scroll through the subtitles will be included in the near future.
The feature can be found under the calling sub-menu of the settings section.
Early next year, Microsoft will introduce the same feature to PowerPoint, allowing the speaker's words to appear on-screen as they present.
The feature was announced on the UN's International Day of Persons with Disabilities, and is designed primarily to help disabled people to keep up with content on these platforms.
