BP will hand the Russians nearly $8 billion in shares for a 9.5 percent stake in Rosneft, the companies said in a statement.
The agreement would give BP access to Arctic exploration sites in an area as large and promising as the British North Sea, BP said.
"This unique agreement underlines our long-term, strategic and deepening links with the world's largest hydrocarbon-producing nation," BP's Chief Executive Officer Executive Bob Dudley was quoted as saying in the same statement.
With the joint venture, hailed by most analysts, BP would score a major investment comeback after selling major assets to deal with the aftermath of the Gulf of Mexico oil spill.
"From what we know, it sounds like it's potentially good for BP," Phil Weiss, analyst at New York equities firm Argus Research, told the BBC. "BP gets access to resources; Rosneft gets access to expertise and knowledge."
The Russians are happy about a new jointly run technology center to be opened in Russia.
"Our future joint venture will utilize the experience and expertise of BP, one of the leaders in the global oil and gas industry," Rosneft President Eduard Khudainatov said in a statement. "This project is unique in its complexity and scale both for Russia and the global oil and gas industry. We see it as the next step in developing our relations with BP."
To be sure, critics are wary that state-controlled Rosneft, 75 percent owned by the Kremlin, could gain too much access to a Western oil major with assets in Europe and North America.
U.S. Rep. Edward Markey, D-Mass., the ranking on the House Natural Resources Committee, called on U.S. regulators to review the joint venture.
Dudley himself has had reasons to question doing business in Russia: The former head of Russian joint venture TNK-BP, he fled the country in 2008 after falling out with other shareholders.
It should soothe critics then, that Dudley himself vowed that teaming up with Rosneft would serve the interest of consumers, shareholders and governments in the West by tapping into what he said is "one of the world's last remaining unexplored basins."
British Energy Secretary Chris Huhne also welcomed the deal, calling it "ground-breaking."
"It deepens the business links between the U.K. and the Russian Federation," he said.
Investors seem to agree. Both BP and Rosneft shares rose by 2.5 percent and 3.5 percent, respectively, in Monday morning trading in London and Moscow.