Anthony Albanese and Indian counterpart Narendra Modi finalised the deal on Friday, encouraging collaboration and creative exchange to ensure more co-produced films between the nations.
Projects in both countries will get access to government funding including grants and tax offsets.
It was one of a number of major announcements made following meetings between the two leaders, including on trade and defence.
In a joint address with Mr Modi at the end of the tour, Mr Albanese revealed the nations agreed on an early conclusion to their Comprehensive Economic Co-operation Agreement, adding he was hopeful the deal would be wrapped up by the end of the year.
A limited free-trade agreement between the countries came into effect in January but has already borne fruit, with more than $2.5 billion worth of Australian produce hitting India.
The pair also announced an Australia-India solar task force co-chaired by Australian professor Renate Egan, one tangible outcome from discussions on the need to address climate change.
The nations are also set to work more closely on supplying critical minerals as India seeks to meet ambitious goals of 50 per cent renewable energy and 30 per cent electric vehicle usage by 2030.
Arts Minister Tony Burke said the Australian screen industry would benefit greatly from the co-production deal, including through greater access for local filmmakers to the international scene.
"India is a global powerhouse when it comes to film … bringing a slice of Bollywood to Brisbane, while showcasing Melbourne to Mumbai is good news for the Australian screen industry," he said.
"This will open up new audiences and investment for local screen producers, taking Australian stories to one of the largest cinema audiences in the world."
Trade Minister Don Farrell, who was in India to sign the deal, agreed India's role as a "cultural powerhouse" made it a significant announcement.
"India is an important economic and cultural partner to Australia, and our governments have been working hard to bring our two film industries closer together," he said .
