Levelling Up Secretary Greg Clark joined local leaders at York’s National Railway Museum to sign the deal, which will see the region have its first directly elected mayor.
Some £540m will be handed to the new mayor by government over the next 30 years to improve transport, affordable housing and the local economy.
The deal unlocks an investment in York Central of up to £50m, as well as £13m for the building of new homes on brownfield land and £7m to drive green economic growth.
Leader of North Yorkshire County Council (NYCC) Councillor Carl Les said the deal was “a start – and a long time coming”.
He added: “North Yorkshire folk are canny folk and if you’ve been told you have half a billion pounds, but we’ve got to have a mayor – well, I would say I’ll go for the mayor.”
He said the two councils already worked together and could see no reason why this would not continue.
“There’s a structure and decision making process,” he said. “The mayor will chair the combined authority and I think it’d be a very foolish mayor who got accused of favouring one over the other.”
The deal is the first of 13 devolution negotiations named in February’s Levelling Up White Paper to come to fruition. Mr Clark said he considered a devolution deal for Hull and the East Riding as “unfinished businesses” and said he was due to meet leaders in the next few days to advance discussions.
“I am absolutely convinced – this comes from growing up on Teesside – that actually decisions are better made locally than in London,” he added.
The Archbishop of York was among those who welcomed the deal.
Stephen Cottrell said: “This has the potential to unlock major government investment in our region and I look forward to seeing the detail and understanding how this will work.”