The memorandum of understanding signed by the companies will see the defense manufacturers foot the bill for the development program.
The project follows an agreement by the British and French governments in November to proceed with the development on next-generation drones as part of the British government's plan to cut defense costs by purchasing more kit with other nations, London media reported.
The Daily Telegraph said the countries hope the deal would "lead to an order from the two governments within the year, to build a demonstrator unmanned aerial vehicle with the ability to fly itself as well as being operated remotely."
There was no indication by the companies or the governments on what the cost of the demonstrator would be. Still, the Telegraph said that BAE has spent in excess of $100 million building Mantis drones, designed for reconnaissance and surveillance missions.
Kevin Taylor, managing director Military Air and Information at BAE Systems the project would "ensure that the U.K. and France maintain their status as leading providers of aerospace capability."
"It will also ensure that both countries get the best return on the investment they have made in state-of-the-art technologies and UASs. We have a strong team in place that is ready to develop the future frontline UAS capability required by both the U.K. and France."
EADS, the parent company of Airbus, is purported to be working on a drone capable of challenging the BAE-Dassault offering. The company has had "exploratory talks" with France, Germany and Spain on developing the aircraft, which it calls Talarion.
Earlier this year, EADS Chief Executive Officer Louis Gallois warned against the existence of competing MALE UAV programs in Europe. He said European nations should "make a choice" about their future, claiming the co-existence of Talarion and Mantis programs would be a "risk."
Taylor said the drone under development by BAE and Dassault has yet to be given a name. It is being designed to fly as long as 36 hours depending on the equipment mounted on it.
That joint venture marks the biggest Anglo-French military project since the Jaguar fighter 40 years ago. Experts explain that the drone in development would be a rival to the Predator made by General Atomics of the United States. That model is widely deployed in Afghanistan.
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