Fiat and BMW plans to develop and build new cars, components and engines together.
Although both sides have refused to comment on what parts they expect to share, suppliers have indicated they will jointly develop a platform to underpin the next Fiat Grande Punto, BMW Mini and Alfa Romeo Mito models.
The agreement has been reached as the companies attempt to drive down production costs. These savings could be passed on to car buyers.
Full details of the alliance are expected to be confirmed at the end of this year.