The document was signed in the Kremlin by Gazprom CEO Alexei Miller and Eni President Paolo Scaroni in the presence of Russian President Vladimir Putin and Italian Prime Minister Romano Prodi.
State-controlled Gazprom and oil and gas giant Eni S.p.A. agreed in June to build the South Stream pipeline, which will deliver 30 billion cubic meters of gas annually via Bulgaria to Austria, Slovenia and Italy.
Under the memorandum on establishing the joint venture, Gazprom and Eni will each hold 50% in the company, Scaroni said.
The Eni CEO also said investment in the South Stream gas pipeline project would exceed $10 billion.
Russian Industry and Energy Minister Viktor Khristenko earlier said Austria and Italy would be the final destination points of the South Stream gas pipeline.
The South Stream project, announced by Gazprom in June, replaces previous plans to extend the Blue Stream pipeline which runs from Russia to Turkey.
Russia's state gas monopoly has actively sought new export routes to avoid transit countries since a gas supply dispute with Ukraine at the beginning of last year. The company is currently working on the Nord Stream pipeline with Germany's E.ON and BASF, which will link Russia to Germany via the Baltic seabed.