Seoul has agreed to halt cross-border propaganda broadcasts as part of the deal.
South Korea started the broadcasts after a landmine injured two of its soldiers on the border earlier this month.
Its lead negotiator said the move came after North Korea agreed to express “regret” over the incident.
The agreement came after marathon talks that began after an exchange of fire at the border on August 20.
The negotiations in the abandoned “truce village” of Panmunjom inside the demilitarized zone (DMZ) were said to have ended at 00:55 local time on Tuesday, August 25.
A joint statement said South Korea would stop the loudspeaker broadcasts at midday on August 25 and North Korea would end its “semi-state of war”.
Both countries have also agreed to work towards a resumption of reunions for families separated by the 1950-1953 Korean War.
National security adviser Kim Kwan-jin, who led the negotiations for South Korea, said there would be follow-up talks to discuss a range of issues on improving ties
However, he said it was not the right time to push for a summit between the leaders of the two countries.
South Korea resumed the propaganda broadcasts after an 11-year hiatus earlier this month in apparent retaliation for the landmine incident on August 4 – although North Korea denied having planted the mines.
It also denied shelling South Korea last week – an incident that prompted artillery fire from the South.
Pyongyang ordered its troops to be “on a war footing” on August 21 while Seoul warned that it would “retaliate harshly” to any acts of aggression. About 4,000 residents were also evacuated from border areas in South Korea.
In 2004, the two Koreas reached an agreement to dismantle their propaganda loudspeakers at the border.
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