In signing the Peace and National Reconciliation Agreement, President Filipe Nyusi and Renamo leader Ossufo Momade said they would peacefully participate in Oct. 15 elections.
Portuguese news agency Lusa said the signing ceremony in Mozambique's capital of Maputo was witnessed by five African heads of state, including South African President Cyril Ramaphosa.
Thousands of Maputo residents also attended the ceremony in Peace Square, including many children wearing T-shirts printed with the phrase "Ultimate Peace."
The European Union's foreign policy chief, Federica Mogherini, and Portuguese Foreign Secretary Teresa Rebeiro were present as well.
Mozambique is a former Portuguese colony that won independence in 1975. Portugal supported the peace negotiations.
The peace accord followed the two leaders signing a related agreement last week to cease military hostilities.
The two agreements are the result of years of negotiations to bring an end to sporadic violence that has persisted since a bloody civil war ended in 1992. An estimated 1 million people died in the 15-year war.
A previous peace agreement was signed in 2014, but the violence sporadically flared up.
The new accords call for the immediate disarmament and reintegration into society of more than 5,000 Renamo rebels. Some Renamo officers are to take up leadership positions in the military.
However, only a few of the rebels have turned in their arms so far.
As part of the negotiations, Mozambique's legislature amended the country's constitution so provincial governors will be elected instead of appointed by the ruling party.
The change is expected to allow Renamo to win a few provincial governorships in the central and northern regions where it has support.