The UN-brokered agreement ends two years of deadlock
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Cypriot President Tassos Papadopolous and Turkish Cypriot leader Mehmet Ali Talat have agreed on moves to try to revive the stalled peace process.
After UN-hosted talks, they approved a programme of confidence-building steps including inter-community talks.
The process halted two years ago when Greek Cypriots rejected a peace plan.
Cyprus has been divided since 1974, when Turkish troops occupied the north in reaction to a coup inspired by Greece's then-military government.
The new moves were agreed at a three-hour meeting held in the island's buffer zone.
"This is a very historic occasion," said UN Under-Secretary General Ibrahim Gambari, who hosted the talks.
The plans include a series of meetings designed to improve the atmosphere between the two communities, due to begin later in July.
Technical committees will be set up to address what Mr Gambari described as issues affecting the day-to-day lives of all Cypriots - such as water management and environmental issues.
Issues of substance will also be studied by experts on the committees, and the two leaders will meet from time to time when appropriate to assess the process.
Mr Papadopoulos sounded a note of caution on the likely obstacles ahead.
"This was an agreement to start a process. Of course, the difficulties may appear in the discussions of substance," he told reporters.
Challenges ahead
Mr Gambari was clearly pleased with the outcome of the talks, says the BBC's Tabitha Morgan in Nicosia.
The challenge will be to narrow the gap between the two communities both on technical issues and on more substantive political ones, she says.
So while a limited negotiating process is now under way, significantly the two leaders have not committed themselves to a timetable for further direct talks, she points out.
The failure of the UN plan in 2004 meant that Cyprus joined the EU that year as a divided country.
The self-styled Turkish Republic of Northern Cyprus is recognised only by Turkey.
The ongoing dispute over Cyprus has complicated Turkey's accession talks with the EU.