The state-controlled Alstom, the manufacturer of French high-speed trains, which are a source of national pride, called the tie-up with its German competitor "a key moment in Alstom's history, confirming its position as the platform for rail sector consolidation".
The group headquarters will be in the Paris area and 50 percent of the shares in the new entity owned by Siemens, an Alstom statement said.
"We are creating a new European champion in the rail industry for the long term. This will give our customers around the world a more innovative and more competitive portfolio," said Joe Kaeser, president and CEO of Siemens AG.
The Alstom merger with Siemens' railway division has been mooted for years and completes the transformation of the French group, which sold off its energy business to American rival General Electric in 2015 for €9.5 billion.
The French state has shed its stake in the new entity, which has an order backlog of €61.2 billion and a combined revenue of €15.3 billion, according to information from the last annual financial statements of both groups.
Takeovers of major industrial companies are extremely sensitive in France, where successive governments have sought to protect the country's manufacturing capacity and avoid major job losses.
"The government has already made sure that a certain number of guarantees, notably in terms of employment and governance, will be included in the terms of the agreement," junior finance minister Benjamin Griveaux told the French parliament on Tuesday.
The board of directors of the new group will consist of 11 members. Six of them will be designated by Siemens, including the chairman. However, Henri Poupart-Lafarge will continue to lead the company as CEO and will be a board member.
"The merger is necessary to challenge the Chinese mastodon (CRRC Corp) which is two to three times bigger than we are," said Claude Mandart, head of the biggest Alstom trade union, the CFE-CGC, earlier Tuesday.
"At the same time we're worried because we're in direct competition with Siemens in all areas: very high speed trains, signalling, regional trains, metros, trams," he added.
France was a pioneer in high-speed rail travel, which saw its widely admired trains - known as TGVs for "Trains a Grande Vitesse" - frequently smash world records in the post-war era.