The car-makers have signed a memorandum of understanding, under which BMW will supply diesel engines to Toyota for the European market and Toyota will give BMW access to its experience in developing the lithium-ion batteries used in electric and hybrid cars.
The latest of many recent pacts in the car industry is intended to pool expertise and cut the costs of researching and developing the technologies that cut emissions and use less fuel.
Toyota has been losing market share in western Europe due to a lack of fuel-efficient diesel cars.
Rival companies Renault, Nissan and Daimler signed a similar deal last year to collaborate on green technologies; that agreement included an equity swap, which BMW and Toyota said may be discussed in future.
Toyota Motor Europe president and chief executive Didier Leroy said: “It is interesting to see what can be achieved when Japanese engineering meets European engineering and when the cooperation really works.”