The joint venture would start production by early 2010 and would supply products to both domestic and overseas markets, Ashok Leyland said in a regulatory filing to the Bombay Stock Exchange.
The 50:50 JV would build a manufacturing facility in the country, for which it is currently evaluating site locations, it added.
"We see huge synergies between this business and our existing one of commercial vehicles, in terms of aggregates parts and distribution network," Ashok Leyland Managing Director R Seshasayee said.
John Deere is a unit of New York Stock Exchange-listed Deere&Company.
Shares of Ashok Leyland were trading at Rs 26.60, up 2.50 per cent in the late afternoon trade on the BSE.