The merger applies to ex-Soviet Russia, Azerbaijan, Belarus and Kazakhstan, and will also cover Armenia and Georgia.
"Uber and Yandex have entered into an agreement to form a new company," the head of Uber's operations in Europe, the Middle East and Africa, Pierre-Dimitri Gore-Coty, said in a statement, calling it "an exciting opportunity in a unique situation."
The merger applies to ex-Soviet Russia, Azerbaijan, Belarus and Kazakhstan, and will also cover Armenia and Georgia, where Uber does not currently operate -- in total covering 127 cities, he said.
The move follows the sale by Uber of its China business in 2016 following a ferocious battle for market share.
The company's chief executive Travis Kalanick resigned in June under pressure from investors over a corporate culture rife with bullying and sexism.
Uber launched in Russia three and a half years ago. Yandex started its taxi app in 2011 and controlled more than half of the market in 2016.
Yandex.Taxi's general director Tigran Khudaverdyan said in a statement that the joint venture would provide 35 million taxi journeys per month.
He said the aim was to "create a platform that will be comparable in terms of comfort and accessibility with having your own car."
Yandex said the joint company was worth $3.725 billion. It said it was investing $100 million into the venture, with a 59.3 percent stake.
Uber said its investment is $225 million dollars and its 36.6 percent stake will be worth almost $1.4 billion. The remaining stake will be held by employees.
The companies said that passengers could continue to use the separate apps, while drivers will work using a single platform.
The combined venture will also include Uber's EATS online meal delivery business.
The third major player in the Russian marketplace is Gett, launched in Israel in 2011, which covers more than 70 Russian cities.