The agreement, Iran's biggest-ever car deal, will mean the investment of 600 million euros to refurbish a factory at Saveh, 120 kilometres south-east of the capital.
It is a joint venture with Iran's state investment body IDRO and private company Parto Neguine Nasseh, who will each take a 20 percent share to Renault's 60 percent.
The first phase will lead to production of 150,000 cars a year, according to IDRO boss Mansour Moazami.A second phase, beginning in 2019, will last three years and should mean the production of 300,000 Symbol and Dacia Duster models a year.
Thirty percent of the vehicles and parts produced at the factory will be made for export.
French businesses flock to Iran
The signing follows a strategic agreement between the company and Industry Minister Mohammed Reza Nematzadeh when he visited Paris in September last year.
Renault, which started operating in Iran in 2004, already has production capacity of 200,000 vehicles a year and believes that the market in the a country of 80 million people, should reach two million by 2020.
French businesses have been keen to invest in Iran since the partial lifting of sanctions in January 2016.
Another French carmaker, PSA, signed a joint venture agreement with Iran's Khodro in June 2016.
Last month the US, while accepting that Iran was complying with the nuclear deal, slapped new sanctions on Iran over a satellite rocket launch that had angered Israel, as well as the Trump adminstration.