Canada will have responsibility for constructing, financing and operating the bridge, which will be built under a public-private partnership.
Construction is expected to take four to five years. The total construction costs are valued at between CA$3.5bn to CA$4bn (£2.2bn to £2.5bn), with the construction of the bridge itself estimated at US$950m ($604m).
It will be built near to the Ambassador Bridge, which was completed in 1929 and is the busiest trade crossing on the US - Canada border.
The project includes the bridge, Canadian and US inspection plazas and an interchange with Interstate-75. The agreement allows for the creation of an international authority to oversee the letting of bids to design, develop, finance, construct and operate the crossing.
Under the agreement, Canada will be responsible for constructing, financing and operating the new crossing with likely private sector involvement through a public-private partnership. Ontario and Canada are jointly funding the Windsor Essex Parkway, which will connect Highway 401 to the new bridge. The US plaza will be the responsibility of the US government.
Canada and Michigan can now proceed with the next steps of the project, which include further design work and property acquisition on the US side.