The California-based company reached the agreement Friday with China Media Capital and Shanghai Media Group, along with Shanghai Alliance Investment, which is part of the Shanghai government, the Los Angeles Times reported.
"When you look out five to seven years from now, China will be the No. 1 media market in the world," DreamWorks Chief Executive Jeffrey Katzenberg said. "It's a huge opportunity for us."
The animation studio already has people working on more than a half-dozen projects and is recruiting staff in Hollywood for the new venture.
The plan is to release one animated film each year in China, with the first scheduled for 2016, the Times said.
"We share the same vision with DreamWorks Animation to build a world-class family entertainment company," Ruigang Li, chairman of China Media Capital said in a statement. "Oriental DreamWorks will be a unique position to create high-quality content and interactive entertainment products for China and international markets."