Reporting "Asre Khodro", The first cars produced under the new venture are set to hit Iranian roads in February, with the aim of producing 200,000 vehicles a year by 2018.
PSA is the first Western carmaker to announce a return to Iran since many economic sanctions were lifted in January when a landmark nuclear deal with world powers took effect.
It had signed an initial deal during a visit by President Hassan Rouhani to Paris in January.
"Today is the comeback of PSA to Iran. We are very proud," said Jean Christophe Quemard, who oversees PSA's Middle East and Africa operations, according to AFP.
"This company is committed to Iran and through this Iranian company we show that we are really committed for the future and ready to invest in this country."
The 50-50 joint venture will manufacture three models -- the Peugeot 208, the 2008 sport utility vehicle and 301 compact -- using parts mostly made in Iran.
Some 400 million euros ($450 million) will be invested over the next five years, Quemard said at the ceremony, flanked by Iran Khodro chief executive Hashem Yekeh-Zareh, AFP says.
The money will go into building manufacturing capacity in Tehran, as well as research and development, PSA said in a separate statement.
Yekeh-Zareh said 30 percent of the cars produced will be exported to the Middle East and beyond.