The contract with the German car firm will see hundreds of vehicles made at the main plant of Russia’s GAZ company.
Daimler is to invest more than €100m and Gaz €90m in the project.
Start of Mercedes-Benz Sprinter production at GAZ in Nizhny Novgorod is scheduled for the first half of 2013.
GAZ has started preparation of its production facilities for the joint project. GAZ employees are being trained at Daimler plants in Germany.
Daimler will organize the vehicles sales and service through the existing Mercedes-Benz dealership network, which will grow significantly in the future.
Gaz has similar contract manufacturing deals with the likes of GM, VW and Skoda.
The move by Daimler, which makes Mercedes Benz cars and trucks, comes as Russian companies increasingly look to attract more investment and partnerships from abroad.
GAZ, Russia’s sole Russian automotive company, has been courting major vehicle companies over recent years as it attempts to use thousands of square metres of factory space at its sprawling main site in Nizhny Novgorod, an hour’s flight south of Moscow.
The company is part of the business empire of billionaire oligarch Oleg Deripaska. Its chief executive Bo Andersson was parachuted in in 2009 to make the company more competitive and open to foreign investment.
He is also in ongoing talks with Chinese vehicle makers over possible tie-ups but clashes in business culture has prolonged negotiations.
The parent company Basic Element, of which Deripaska is the majority shareholder, has a string of businesses including aluminium giant Rusal. It is responsible for around one per cent of Russia’s GDP.
The former GM executive said: “Our contracts with the likes of GM are very important to us. It’s good for the companies and us. We have the capacity and the deals makes sense for both of us.”
The company has cut half its workforce over the past three years while productivity has increased as Anderson – with the backing of Deripaska – seeks to transform the culture of the firm.
Gaz makes light vans and buses as well as off road and military vehicles has been pulled back form the brink of collapse after it was hit by the global credit crisis and a disastrous investment in LDV vans in the UK.
President Vladimir Putin takes a close interest in the company to the point of suggesting to Anderson that he raise workers’ salaries – a request politely declined as he fights to keep costs under control.
Meanwhile Volker Mornhinweg, head of Mercedes-Benz Vans, said of the Gaz deal: “The partnership with GAZ will take us a big step forward in the promising Russian van market.
"For Mercedes-Benz Vans, Russia is an important future market that offers us good growth opportunities. That is why we want to produce our vans for Russia locally and cater to local customer preferences.”