Bolivia's state-run Empresa Siderurgica Mutunhas has signed a $2.1bn (£1bn) deal with Indian firm Jindal Power & Steel to mine large deposits of iron.
Mr Morales said the deal would help boost Bolivia 's eastern region
President Evo Morales said the deal was the largest foreign investment in the South American country.
The area to be mined, on Mount El Muntun near the border with Brazil, has 40 billion tons of iron and 10 billion tons of magnesium, Bolivia said.
Bolivia hopes the deal will develop the eastern region and create local jobs.
In the long term, Bolivia hopes it will lead to 12,000 jobs in the border city of Puerto Suarez, a poor and underdeveloped area.
The deal - which involves plans for both a mine and a steel plant - comes after more than a year of talks.
While the deal was initially signed in June 2006, failure to agree on the amount Jindal would pay for access to Bolivian natural gas needed to run the steel plant had delayed the agreement.
Bolivian President Evo Morales said the joint deal came after "very tough" negotiations.
The project is expected to provide Bolivia with some $200m in tax revenues on an annual basis.