Under the terms of the agreement, Inoxum will be merged with Outokumpu. In return, the German giant would receive a "significant cash payment" to cover Inoxum's debts, plus a minority stake of 29.9 percent in the combined group, ThyssenKrupp said in a statement.
"Agreement in principle has been reached on the combination of Outukumpu and Inoxum," the statement said. "The deal values Inoxum at around €2.7 billion."
The management board had already agreed to the transaction in principle "and now the negotiating parties have also reached an agreement with employee representatives," in particular with regard to job guarantees and the continuation of operations at the unit's different sites, the statement said.
Under the deal, all of Inoxum's German production sites will be maintained until the end of 2015.
A melting plant at Krefeld, western Germany, is to be gradually shut down by the end of 2013, while another at nearby Bochum will remain in operation until the end of 2016.
There would be no compulsory redundancies until the end of 2015, ThyssenKrupp said.
The deal must now be approved by the German group's supervisory board at an extraordinary meeting later on Tuesday and the sale must also be given the green light by the regulatory authorities, ThyssenKrupp added.
ThyssenKrupp - the world's 14th biggest steelmaker and also a leading manufacturer of elevators, submarines and car parts - had announced in May that it planned to sell off its stainless steel activities as part of a massive €10-billion divestment programme.
Inoxum has annual sales of more than €6 billion and employs more than 11,000 people worldwide. Massive writedowns at the business pushed ThyssenKrupp deeply into the red in its the 12 months to September.
In December, it sold civil shipbuilding activities Blohm + Voss to British investment Star Capital Partners for an undisclosed sum.
The IG Metall labour union insisted that ThyssenKrupp was solely responsible for the "difficult economic situation of both the group as a whole and the stainless steel division."
"In the extremely difficult and highly tense negotiating process, we were not able to prevent ThyssenKrupp and Outokumpu from shutting down the Krefeld plant, but we were able to secure guarantees for all employees," the union said.
Investors welcomed the news with ThyssenKrupp shares showing gains of 1.94 percent on the Frankfurt stock exchange on Tuesday, outperforming the overall market.