French Lance Corporal Jules-Andre Peugeot and German Sub-Lieutenant Albert Mayer were both killed on the eve of the outbreak of the 1914-18 war.
The commemoration took place in the northeastern French border town of Joncherey, near Belfort, where the German officer led a reconnaissance mission into French territory on August 2nd 1914.
While Peugeot is remembered in France every year, Saturday's events were the first time that representatives from the two countries joined a ceremony in memory of both men.
Urns containing earth from the graves of both men were placed side by side at the town's monument to the French soldier.
The inscription on the stone reads: "More than 30 hours before declaring war on France, Imperial and Royal Germany spilled the first French blood."
Sibylle Frey, whose grandmother was Mayer's sister, said she had been "very touched" by the ceremony.
"It is very important that after 100 years, the French and German families can be reunited," she said.
As Europe prepared for war, Mayer was the officer in charge of a small group of mounted soldiers who crossed the border into France only to come face-to-face with a local surveillance unit.
Peugeot and Mayer exchanged fire -- the Frenchman being killed instantly while the German died after coming under further French fire.
The reason for the incursion remains unclear since Germany did not declare war on France until the following day, August 3rd 1914.
"This is an incident that should not have happened. It is important to tell the younger generation about it," said Gilles Maire, a retired lieutenant-colonel who helped organise Saturday's commemoration.
Before the observance, actors in period costume re-enacted the events of the day before a crowd of around 200.
As Europe prepares to remember the start of the the war, ceremonial services will be held in Belgium, France and Britain over the coming days.
In Mons and Liege on Monday, a service to mark 100 years since the invasion of Belgium will be attended by members of the Belgian and British royal families as well as other heads of state and government.
London will also hold events to mark 100 years since Britain declared war on Germany.
The four-year conflict that became known as the Great War left some 10 million dead and 20 million injured on the battlefields. Millions more perished under occupation through disease, hunger or deportation.