The Sunnyvale, Calif.-based company said it would strip out portions of users' IP addresses and alter cookies and other information used to track personal preferences within 90 days, applying the policy to search log data as well as page views, page clicks, ad views and ad clicks.
The policy comes in response to pressure from regulators in Europe and around the world, who have questioned the need for search engines to retain the data on users.
In September, Google said it would reduce the time it stores search information from 18 months to nine months.
The EU has recommended companies keep data no longer than six months and urged the companies to adopt an industry-wide standard. Microsoft keeps search data for 18 months but said last week it would support a standard of six months.
Yahoo's announcement may put pressure on the other companies to tighten the standard even further.
Search companies have retained data in the past with the aim of providing more accurate and relevant search results based on user preferences and also to more effectively target advertisements based on location, demographics and search habits.
Anne Toth, Yahoo's vice-president of policy and head of privacy, said the three-month policy represents the minimum amount of time needed to respond to their business needs.
"We're proud this new policy sets a new benchmark for the industry," she said in a statement.
Yahoo said it will begin implementing the policy next month and expects it to be effective across all services by the middle of 2010.