Jordan has said the Syrian border encroaches 125sq km inside Jordanian territory, while Jordan runs 2.5sq km into Syria.
Jordanian Interior Minister Samir Habashna, who signed the agreement along with his Syrian counterpart Ghazi Kanaan, told reporters the two agreed to solve the dispute by trading land along their border.
Syria will be able to keep the 125 square kilometres in Jordan to safeguard the interests of those who live there, giving Jordan an equivalent territory in the border area, he said.
The dispute "was a recurrent thorn in our side. The agreement will bolster trust between our countries," Habashna said.
Kanaan said the agreement reflected "the mutual interests and good neighbourly relations between the two brotherly countries".
The two countries announced in late 2004 that they had reached agreement to settle the dispute based on a 1931 demarcation accord.
Also on Monday, Syria and Jordan signed an agreement to fight smuggling, drug trafficking and organised crime as well as 19 other accords in the fields of culture, agriculture, trade and transport.
Jordanian Prime Minister Faisal al-Fayz and his Syrian counterpart Naji Utri witnessed the signing ceremony.
King Abd al-Allah said Jordan was keen on developing ties with Syria in various sectors and that agreements to be signed between the two neighbours reflected "the positive development" of relations.