Presiding over Thursday's ceremony was the crown prince of Dubai and the Turkish prime minister, the Anatolia news agency reported.
Prime Minister Recep Tayyip Erdogan said the investment from the wealthy emirate was the first foreign investment in Turkey since it opened membership talks with the European Union on Tuesday.
The investments will mostly be made in Istanbul, Anatolia said, where the real-estate market has been surging.
Istanbul is Turkey's largest city.
The agreement was signed between the CEO of Dubai International Properties, a large real-estate developer, and the mayor of Istanbul at an Ottoman palace on the Bosporus.
Source of inspiration
Crown Prince Shaikh Mohammed bin Rashid Al-Maktoum said the agreement was "not about investment, but rather cooperation", Anatolia reported.
The agreement was signed at an
Ottoman palace on the Bosporus
"This cooperation is a cooperation of friendship and affection," he was quoted as saying.
Erdogan visited the United Arab Emirates last week, and said that Dubai, the country's model city, was "a source of inspiration".
Erdogan said his guests from Dubai saw steps Istanbul could take to reach that level.
Dubai, where some of the world's tallest buildings shoot up from the desert, is one of the world's fastest-growing cities and has become a financial and tourism hub in the Middle East.
After their meeting, the two leaders went to a nearby hotel to break their fast on the second day of Ramadan, the Islamic holy month of fasting.