The provisional agreement, signed in Manila, sets up an autonomous region on the island of Mindanao to be called Bangsamoro and ends a drive for independence, CNN reported.
The Moro Islamic Liberation Front has been negotiating with Philippine officials for 15 years. During that time, MILF attacks have left thousands of people dead.
Marvic Leonen, the government's chief negotiator, said technical groups have already opened discussions on sharing power and wealth in the region, ABS-CBNnews.com reported.
Mohagher Iqbal, MILF's chief negotiator, called the signing of the agreement "an achievement of a lifetime. This is the most important legacy we can give to the next generation."
The agreement calls for the MILF to gradually decommission its forces "beyond use." All law enforcement responsibilities will be transferred from the Philippines armed forces to a Bangsamoro police force.
President Benigno Aquino III is expected to issue an executive order creating a transition committee that will draft a basic law. That law must be approved by the Philippine Congress and will be subject to a public referendum.