The move follows months of talks in the wake of concerns about the expense, complexity and sound of the hybrid engines, and Mercedes' dominance of F1.
Costs for customer teams will reduce by €1m in 2017 and a further €3m in 2018.
And the four manufacturers have agreed a package of measures aimed at bringing engines' performance closer together.
Governing body the FIA has agreed to guarantee the stability of the regulations until 2020 and to maintain the existing governance structure of F1.
This removes the threat made last October by FIA president Jean Todt and F1 commercial boss Bernie Ecclestone to introduce a cheaper alternative engine to run alongside the turbo hybrids under an equivalency formula.
Ways in which F1 hopes to ensure the convergence of performance across the four suppliers include the removal of restrictions on development and constraints on the weights, dimensions and materials of various parts of the engines.
In addition, restrictions on turbo-boost pressure will be introduced in 2017 and 2018.
To further ensure cost reduction for customer teams, who have complained the engines are too expensive, the number of engines a driver can use each season will be progressively reduced over the next two years.
Customer teams currently pay in the region of €18-23m a year for a supply.
Manufacturers have agreed to ensure all teams have an engine, following the controversy surrounding Red Bull last season when the former champions tried and failed to dump Renault for an alternative supplier.
If a team finds itself without an engine in the future, an "obligation to supply" will be triggered. Details have not been released.
However, the measure is largely academic as, according to senior sources, Renault's contract with F1 includes an obligation to supply a team other than its factory outfit if asked.
Red Bull is without an engine contract for next season, but this clause - in addition to the reluctance of the other three manufacturers to supply them - is likely to ensure they stay with Renault.
Finally, the four manufacturers - Mercedes, Ferrari, Renault and Honda - are researching ways to improve the sound of the engines, which has been criticised for being too quiet and flat compared to previous generations of F1 engines.
These will be implemented by 2018 at the latest, the FIA said.
The engine rule changes are in addition to wholesale design changes for the cars aimed at making them faster and more dramatic.
The cars will be widened from 1800mm to 2000mm, with wider bodywork, tyres and front and rear wings, and more downforce created from the underfloor than this year.
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Formula 1 bosses have agreed a set of rules until 2020 aimed at reducing the cost of engines and ensuring their performance converges.