She told him over lunch that he and Meghan will be welcomed back if they ever decide to rejoin the royals, The Sun reports.
A source said: “Hopefully it cleared the air.”
The Queen summoned Harry for the extraordinary fireside chat to clear the air about his and Meghan’s imminent royal departure.
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Harry’s 93-year-old grandmother is believed to have ended the talk by saying: “You are much loved and will always be welcomed back.”
Harry, 35, had discretely strolled from his Frogmore Cottage home in Windsor Home Park to the castle, where he and the Queen shared a light lunch and tea as they discussed his future.
A royal source said: “The Queen had a lot to talk to Harry about and this was the ideal time for them to both say their piece.
“When Harry and Meghan announced they wanted to quit it all happened very quickly and it was very stressful for all concerned.
“Sunday (UK time) was the first time the Queen has had the chance to talk to Harry on his own and really find out what his plans are. It was a much more relaxed environment and they were both able to speak their mind.”
The chat came amid reports that the Queen is “very sad” that she sees so little of Harry and Meghan’s son Archie.
The source added: “It’s fair to say she is very upset about him and Meghan leaving and she would love to see more of Archie, as would Prince Charles and the rest of the family.
“But she accepts at the moment that his mind is made up and he intends to live in North America.
“However she also wanted to make it clear that the arrangement can only work if they do not exploit their royal status and try to ‘cash in’ — that’s why she wouldn’t let them use the word ‘royal’ for their foundation.
“The Queen is protecting the institution and she is also aware of the cost of security.
“That is something that still needs to be resolved. But Harry is also a much-loved grandson who she has always doted on.
“She made it very clear to him that he and Meghan are always able to come back if they change their minds and she will welcome them with open arms.
“Hopefully the chat cleared the air and the way forward is looking more positive.
“But she wanted to make certain Harry knew there were limits and the whole set-up is subject to a review after 12 months.”
Meghan is expected to fly in to London in the next 48 hours for the couple’s final royal jobs together for the foreseeable future.
But Archie is not expected to join them. The nine-month-old will remain in Canada, looked after by a nanny and Meghan’s best friend Jessica Mulroney.
A new poll suggests 90 per cent of the UK public believes the taxpayer should not pay for Harry and Meghan’s around-the-clock protection if they live abroad.
Canada will cease to pay the bill from the end of this month.
Princess Diana’s former police bodyguard Ken Wharfe said: “It will be sad for the Queen not to see her great-grandson but in security terms Archie is probably safer staying in Canada.”
Mr Wharfe added: “What can’t happen is for Harry and Meghan to lose their Scotland Yard officers and go private. It wouldn’t be safe and they need protection more than ever.
“The solution might be for the Queen or Prince Charles to stump up some or all of the cost of protection and give it back to the taxpayer. This is a new situation and new ideas are needed.”
Harry is thought to have arrived at the castle at around 1pm on Sunday (UK time) and had lunch of poached salmon and salad with the Queen.
Their talks went on throughout the afternoon, with only Her Majesty’s dogs as witnesses. They finished after a tea of scones and cucumber sandwiches.
One source said Harry was seen leaving “deep in thought”.
Meanwhile, William, whose spat with Harry reportedly triggered the royal fall out, was watching his team Aston Villa lose the Carabao Cup final to Manchester City at Wembley.
Harry and Meghan will join William and Kate — the Fab Four as they had been known — the Queen, Charles and Camilla at the Commonwealth Day service at Westminster Abbey next week.
It will be Harry and Meghan’s last duty as senior royals and the first time the couple have appeared with the family since The Sun revealed their Megxit plan in January.
Later this week the pair will attend the Endeavour Fund awards at Mansion House in London which recognises the bravery and achievements of wounded and sick servicemen.
The following day Harry will be at the opening of a new Silverstone Motor Racing museum with Lewis Hamilton.
And on the weekend Harry and Meghan are guests at the Royal Albert Hall for the Mountbatten Music Festival, which raises funds for Royal Marines charities.
The following day Meghan will take part in events to mark International Women’s Day.
Harry’s aides say the couple will return “regularly” to the UK, with him attending the London Marathon in April as its patron.
Both will be at the Invictus Games — the sporting event for wounded servicemen that Harry created — at The Hague in the Netherlands in May.
But one royal insider said tonight: “The reality is that they will spend most of their time in Canada and the States.
“The Queen knows this and that’s why she wanted to make her feelings known at the weekend.
“She hopes a working compromise has been reached, but only time will tell.”
This article originally appeared on The Sun and was reproduced with permission.