diff --git a/.github/pull_request_template.md b/.github/pull_request_template.md
index b5d0e3d4ffd..abf7ed5b1d9 100644
--- a/.github/pull_request_template.md
+++ b/.github/pull_request_template.md
@@ -53,7 +53,7 @@ This PR has:
    - [ ] using the [concurrency checklist](https://github.com/apache/druid/blob/master/dev/code-review/concurrency.md) (Remove this item if the PR doesn't have any relation to concurrency.)
 - [ ] added documentation for new or modified features or behaviors.
 - [ ] added Javadocs for most classes and all non-trivial methods. Linked related entities via Javadoc links.
-- [ ] added or updated version, license, or notice information in [licenses.yaml](https://github.com/apache/druid/blob/master/licenses.yaml)
+- [ ] added or updated version, license, or notice information in [licenses.yaml](https://github.com/apache/druid/blob/master/dev/license.md)
 - [ ] added comments explaining the "why" and the intent of the code wherever would not be obvious for an unfamiliar reader.
 - [ ] added unit tests or modified existing tests to cover new code paths, ensuring the threshold for [code coverage](https://github.com/apache/druid/blob/master/dev/code-review/code-coverage.md) is met.
 - [ ] added integration tests.
diff --git a/dev/license.md b/dev/license.md
new file mode 100644
index 00000000000..dec5a06c428
--- /dev/null
+++ b/dev/license.md
@@ -0,0 +1,128 @@
+<!--
+  ~ Licensed to the Apache Software Foundation (ASF) under one
+  ~ or more contributor license agreements.  See the NOTICE file
+  ~ distributed with this work for additional information
+  ~ regarding copyright ownership.  The ASF licenses this file
+  ~ to you under the Apache License, Version 2.0 (the
+  ~ "License"); you may not use this file except in compliance
+  ~ with the License.  You may obtain a copy of the License at
+  ~
+  ~   http://www.apache.org/licenses/LICENSE-2.0
+  ~
+  ~ Unless required by applicable law or agreed to in writing,
+  ~ software distributed under the License is distributed on an
+  ~ "AS IS" BASIS, WITHOUT WARRANTIES OR CONDITIONS OF ANY
+  ~ KIND, either express or implied.  See the License for the
+  ~ specific language governing permissions and limitations
+  ~ under the License.
+  -->
+
+## License management
+
+[All Apache projects are required to provide the `LICENSE` and `NOTICE` files](https://infra.apache.org/licensing-howto.html).
+This document explains how we manage the license of Druid and the libraries that Druid uses.
+
+When we do a new release, we distribute 2 packages, i.e., source code package and binary package. Since the binary package
+includes not only Druid itself but also all the dependencies of Druid, its `LICENSE` and `NOTICE` files should cover those dependencies as well.
+As a result, the contents of those files are different and managed separately for source code and binary packages.
+Please read the sections below to understand how we manage the licenses and what to update when you want to add new dependencies.
+
+
+### Licenses for source code packages
+
+The licenses for source code packages are maintained _manually_ in [the `LICENSE` file](https://github.com/apache/druid/blob/master/LICENSE). 
+The notices can be found in [the `NOTICE` file`](https://github.com/apache/druid/blob/master/NOTICE) similarly.
+
+
+### Licenses for binary packages
+
+The licenses for binary packages are maintained _automatically_.
+All licenses (for both source code and binary releases) should be registered in [the `licenses.yaml` file](https://github.com/apache/druid/blob/master/licenses.yaml).
+[`generate-binary-license.py`](https://github.com/apache/druid/blob/master/distribution/bin/generate-binary-license.py)
+and [`generate-binary-notice.py`](https://github.com/apache/druid/blob/master/distribution/bin/generate-binary-notice.py)
+will generate the `LICENSE` and `NOTICE` files automatially based on the registry.
+
+
+### Adding licenses
+
+#### When you adopt source codes from other projects into Druid
+
+This requires you to update the license and notice for both source code and binary packages.
+First, you should add a new entry in the [`LICENSE`]((https://github.com/apache/druid/blob/master/LICENSE)) for the dependency you are adding.
+For example, [the `CalciteCnfHelper` class](https://github.com/apache/druid/blob/master/processing/src/main/java/org/apache/druid/segment/filter/cnf/CalciteCnfHelper.java)
+is adopted from Apache Calcite. This requires adding the following entries in the `LICENSE` file.
+
+```
+SOURCE/JAVA-CORE
+    This product contains SQL query planning code adapted from Apache Calcite.
+      * processing/src/main/java/org/apache/druid/segment/filter/cnf/CalciteCnfHelper.java
+``` 
+
+If the project provides its own notice, the contents of the notice should be included in the `NOTICE` file of Druid.
+
+> **NOTE:** Most projects don't provide notice. If you are not sure whether you need to add a notice, then you probably
+> don't have to unless the dependency you are adding is an Apache project.
+
+Going back to the example of Apache Calcite, since all Apache projects provide the `NOTICE` file, you should add the
+following in the [`NOTICE`](https://github.com/apache/druid/blob/master/NOTICE) file.
+
+```
+############ SOURCE/JAVA-CORE ############
+
+================= Apache Calcite 1.10.0 =================
+Apache Calcite
+Copyright 2012-2016 The Apache Software Foundation
+
+This product is based on source code originally developed
+by DynamoBI Corporation, LucidEra Inc., SQLstream Inc. and others
+under the auspices of the Eigenbase Foundation
+and released as the LucidDB project.
+```
+
+Second, you also need to add a new entry in [the `licenses.yaml` file](https://github.com/apache/druid/blob/master/licenses.yaml)
+as below.
+
+```yaml
+name: SQL query planning code adapted from Apache Calcite
+license_category: source
+module: java-core
+license_name: Apache License version 2.0
+source_paths:
+  - processing/src/main/java/org/apache/druid/segment/filter/cnf/CalciteCnfHelper.java
+```
+
+
+#### When you add a new library dependency into Druid
+
+This requires you to update the [the `licenses.yaml` file](https://github.com/apache/druid/blob/master/licenses.yaml).
+For example, to add `aws-java-sdk-core` as a new depdency, you need to add the following entry.
+
+```yaml
+name: AWS SDK for Java
+license_category: binary
+module: java-core
+license_name: Apache License version 2.0
+version: 1.11.199
+libraries:
+  - com.amazonaws: aws-java-sdk-core
+notice: |
+  AWS SDK for Java
+  Copyright 2010-2014 Amazon.com, Inc. or its affiliates. All Rights Reserved.
+
+  This product includes software developed by
+  Amazon Technologies, Inc (http://www.amazon.com/).
+
+  **********************
+  THIRD PARTY COMPONENTS
+  **********************
+  This software includes third party software subject to the following copyrights:
+  - XML parsing and utility functions from JetS3t - Copyright 2006-2009 James Murty.
+  - PKCS#1 PEM encoded private key parsing and utility functions from oauth.googlecode.com - Copyright 1998-2010 AOL Inc.
+
+  The licenses for these third party components are included in LICENSE.txt
+```
+
+### Updating licenses
+
+When you update the version of existing dependencies, you need to update the version not only in the `pom.xml` file but
+also in the `licenses.yaml` file.
\ No newline at end of file