The two firms "have decided to join forces for the development and production of Europe's Future Combat Air System," or FCAS, which is intended to enter service by 2040, they said in a joint statement released at the Berlin air show.
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The French and German governments are expected to make an announcement during the air show about their intention to move forward with the project.
Airbus and Dassault have been rivals in the development of combat aircraft.
Dassault builds the Rafale which is France's main fighter jet, while the defence arm of Airbus based in Germany is a partner in the Eurofighter Typhoon which is used by several European nations, including Germany.
Dassault's chief executive Eric Trappier told journalists that the two firms had reached an agreement in principle to work together.
He called it "a first message to tell (policymakers) we are ready in the field of a future air combat system".
The chief executive of Airbus's defence unit, Dirk Hoke, called the project a "huge step forward" in ensuring the development of technologies needed to ensure European sovereignty.
"It can only be done, not only when the governments work together, but when key industrial partners team up," he said.
Drones, cruise missiles
The teaming up of Dassault and Airbus all but means that they will lead the development of the FCAS, which in addition to a new combat aircraft also plans to include drones and cruise missiles.
Britain had agreed with France in 2014 to develop a new fighter aircraft, but Brexit has in practice put those plans on ice, and thus freezing out BAE Systems, which builds the Eurofighter Typhoon together with Airbus.
The only other firm in the EU which produces fighter jets is Sweden's Saab.
Howard Wheeldon, an analyst with Wheeldon Strategic Advisory who follows the defence and aerospace sectors, welcomed the development of a new European combat jet.
"But this is going to be a very costly high risk investment for two countries to share and no guarantee of sales to others," he told AFP.
"In or out of the European Union, the UK needs to be part of this development project and it also needs NATO behind it."
In a column published earlier this month in the La Tribune newspaper, French Defence Minister Florence Parly, said defence cooperation would continue with Britain and projects could later be integrated into SCAF.
On Thursday, Parly and her German counterpart Ursula von der Leyen are expected to sign at the air show a document outlining what capacities they are seeking and inviting firms to develop proposals.
German Chancellor Angela Merkel, who visited the air show on Wednesday, praised Franco-German cooperation in the defence sector.
"Franco-German cooperation always spurs European cooperation and in this way are bringing to life more and more the European Defence Union" under which EU nations can collaborate in defence outside of NATO, she said.
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