The Williams team will use Cosworth engines in Formula One in 2006.
Williams have had a difficult season in F1 in 2005
The move brings to an end a six-year partnership with German giant BMW, which has bought Sauber and is setting up its own team for next season.
Team owner Frank Williams said he was confident of having a "class-leading package" because Cosworth was a "leading authority" on V8 engines.
F1 is moving from three-litre V10s to 2.4-litre V8s in an attempt to cut escalating speeds next year.
Technical director Patrick Head said the team had made the decision "purely on technical merit".
Head added that the two sides "speak the same racing language and both have something to prove next year and there can be no greater motivation to succeed".
Cosworth chief executive officer Tim Routsis said: "We are naturally delighted to be alongside one of the most uncompromising and pure-spirited teams in F1."
Williams added: "The evidence of Cosworth's V8 progress we have seen so far validates completely the expectation we have of enjoying a class-leading package given next season's engine rule changes.
"Next year is a brand new start for all concerned given 16 years of V10 engines.
"Some teams and manufacturers have absolutely no experience of V8s, while others enjoy only limited experience.
"Cosworth, however, have excelled historically and in contempoary V8-powered international motorsport."
Williams said both companies would invest in a "wide-ranging partnership agreement for the provision and development of V8 engines" for F1.
This collaboration would "extend to a complete programme of design and development of the entire drivetrain package (spanning engine, transmission, associated electronics, softward and installation architecture".
Williams have struggled this season, which was partly why BMW decided to set up its own team.
BMW motorsport director Mario Theissen said: "We would like to wish WilliamsF1 every success with their new partner.
"But before that, a strong finale to the current season is our common goal."
Cosworth have supplied engines to Red Bull this year, but they will switch to Ferrari in 2006 and 2007.
Minardi will also use Cosworth engines next year, but only a detuned version of this year's V10 model.
Cosworth was owned by Ford until last November when the Northampton-based company was sold to the co-owners of the US-based ChampCar series, Kevin Kalkhoven and Gerald Forsythe.
The company dominated F1 in the 1970s and early 1980s, but the sport is now dominated by major car manufacturers.
An engine supply deal with a car company is considered a pre-requisite for success in the modern era because of the massive levels of financial investment required to develop engines.
Williams have Australian Mark Webber under contract to drive one of their cars, and claim they have a deal for Englishman Jenson Button to join them from BAR-Honda, although Button wants to stay where he is.
Williams are also believed to have an option to retain German Nick Heidfeld.