The deal will create the UK’s biggest high street travel operation with 1,200 shops.
It is estimated that the pair can save a total of £35m in costs through the agreement.
Under the merger, Thomas Cook and The Co-operative Travel will have a combined base of 4.3m customers.
The pair estimate that its retail businesses will deliver operating profit of £12.4m and £0.1m for the twelve months ending 30 September 2010 and 1 January 2011.
Thomas Cook will have 70 per cent of the shares in the new company and the Co-operative Group will have a 30 per cent. No cash will change hands.
Thomas Cook Group CEO, Manny Fontenla-Novoa will serve as Chairman, Ian Derbyshire will serve as chief executive and Paul Hemingway as finance director.
Fontenla-Novoa said: "This transaction represents a significant consolidation opportunity in the UK travel market and, by joining forces, we will create the country's largest high street travel network and reach a far wider customer base.
"By consolidating the high street in tandem with delivering on our existing e-commerce targets, we are realising our strategic aim to increase in-house distribution and strengthening our proposition to consumers."