Vodafone Group, the world's biggest mobile phone company, has agreed to buy a 10% stake in Indian firm Bharti Tele-Ventures for $1.5bn (£841m).
As Indians become richer, the demand for phones increases
India's phone market is expanding quickly as strong economic growth boosts consumer spending power.
Last month, Vodafone said it was looking to expand in Asia, France and Poland, and other growth markets.
India has more than 66 million mobile customers and the market is expanding by 2.5 million users a month.
Bharti had more than 14 million mobile phone users at the end of September.
On Thursday, Bharti reported a weaker-than-expected 43% rise in quarterly profits, news that hammered its shares.
However, analysts said that despite the disappointment, the prospects for growth were good.
Less than one in every 10 people own a mobile phone in India, but low tariffs are driving demand.
"This transaction is consistent with Vodafone's strategy of developing our global footprint in growth markets," said Arun Sarin, the British firm's India-born chief executive.
According the Ann Liang, an analyst at research company Gartner, India is set to become one of the world's biggest markets.
"China and India alone will account for nearly 200 million units in 2007, with the Indian market surpassing China in 2009 to reach 139 million units," Ms Liang said.
Under the terms of the deal, Vodafone will buy 4.4% from Bharti Enterprises and 5.6% from investment firm Warburg Pincus.