Renault is to buy a 25% stake in Russia's largest car manufacturer - the firm which owns the Lada model.
Renault wants to grow Lada's brand
The deal will see the French firm work with Avtovaz, which has a 70% share of domestic production, to increase output at home and abroad.
The entire Lada product line will be renewed, with the aim of raising output to more than a million vehicles a year.
Russia's burgeoning economic strength has boosted demand for cars, with total sales growing about 20% a year.
Sales of foreign car brands - including those built in Russia - surged 64% to 1.3 million in the year to October.
Renault said the deal, whose financial terms have not been disclosed, would transform Russia into its "main market".
"The Russian market is booming," said Renault chief executive Carlos Ghosn, who also heads its global partner Nissan.
"There is lots of room for Renault and Nissan to grow their market share in Russia."
Avtovaz currently makes 700,000 vehicles a year at its factory in Togliatti although it has the capacity to increase this to a million.
The firm, which employs more than 100,000 workers, was privatised in 1993.
Russian Technologies, a state-controlled investment business, will retain a 25% stake in Avtovaz as part of the arrangement.
By sharing manufacturing and marketing expertise, the two manufacturers plan to improve the quality and competitiveness of Avtovaz's models.
The agreement will significantly boost Renault's position in Russia, where it already sells about 100,000 vehicles a year.
It has been producing its Logan model at a factory in Moscow for two years.
The world's top carmakers are targeting Russia as a key growth market in the next decade.
Toyota, Ford and Kia have factories there while Nissan is building one in St Petersburg.
Avtovaz already has agreement with GM to build Chevy models in Russia.