The companies said they would establish the venture in Esslingen, Germany, in March to produce and market carbon fibre reinforced plastics (CFRP) for use in automobiles.
The €825,000 ($1.12 million) tie-up will be controlled 50.1 percent by Toray, 44.9 percent by Daimler and the remaining five percent by other parties.
The venture plans to start supplying the high-tech lightweight auto parts to Daimler in 2012 for use in its Mercedes-Benz brand.
Daimler is initially targeting annual production of more than 10,000 automobiles with CFRP and intends to expand that to 20,000-30,000, according to Vice President Rainer Genes.
CFRP is much lighter than sheet steel and aluminium, making vehicles potentially more energy efficient, while high costs have limited the use of carbon fibre materials in auto bodies.
"But Toray has sharply cut costs by successfully reducing the time for production procedures," Toray executive vice president Shinichi Koizumi told a news conference.
"The joint venture with Daimler came as the emissions control in Europe will be tightened in 2012 so there has been a strong need on the side of Daimler to make lighter vehicles," he said.
The two companies announced the tie-up plans in April last year.