Tight on space in its jails, Belgium will start renting 500 cells at Tilburg prison in neighbouring Netherlands.
The agreement will make up for the shortage of cells across Belgium and send roughly 500 prisoners away for three years.
Belgium will pay 30m euros (£26.8m) a year for sending its detainees across the border.
No prisoners who are "an escape risk or a risk to society" will be sent to Tilburg, Dutch officials said.
"The Netherlands is putting the prison and its personnel at Belgium's disposal for placing at least 500 detainees over a period of three years," the Dutch justice ministry said.
The prisoners will be guarded by Dutch wardens, but the prison director will be Belgian.
There are still a number of issues that need to be resolved, including how often detainees may be seen by family and friends.
In Belgium, prisoners may receive visitors three times a week, while those in the Netherlands may only receive guests once a week.
Belgium's prisons currently hold 10,400 people - nearly 2,000 more than capacity.
The Netherlands on the other hand has nearly 2,000 empty prison cells, thanks to a significant drop in crime since the beginning of this century.
The deal was signed by Belgium's Justice Minister Stefaan De Clerck and his Dutch counterpart Nebahat Albayrak.
The agreement still needs to pass both countries' parliaments.