Officials from both sides signed an agreement on Sunday in Lhasa, the capital of the Chinese region of Tibet, to reopen the Nathu La Pass on July 6, China's official Xinhua news agency said.
Nathu La, part of the famous Silk Road trade route and 4,400 m (14,520 ft) above sea level, has been closed since a brief war broke out between China and India in 1962.
The two sides agreed in June 2003 to open the pass, after a historic visit to Beijing by then Indian prime minister Atal Bihari Vajpayee.
The reopening of the pass, which used to be an important land transport route between China and India, is expected to have a significant impact on trade between the two countries, Xinhua said.
It will also help Tibet's economic development, it said, and coincides with the July 1 start of the first train line into the region from eastern China.
"The reopening of border trade will help end economic isolation in this area"
Hao Peng, Tibet government vice chairman
"The reopening of border trade will help end economic isolation in this area," Xinhua quoted Tibet government vice chairman Hao Peng as saying.
"It will also ... pave the way for a major trade route that connects China and South Asia."
India and China - the world's most populous countries - have pushed for greater trade. Bilateral trade reached $18.73 billion in 2005, up by 37.5%, according to Chinese statistics cited by Xinhua.
Trade between the two countries relies on sea transport and is largely seen as modest compared with trade with other partners.
Chinese exports to India will include wool, herbs and electrical appliances, while Indian exports are expected to include iron ore and farm products, Xinhua said.
The opening of the old trade route comes amid a warming of relations between the two nations, although their border dispute has not been totally resolved.
The neighbours agreed in May 2005 that the previously disputed Sikkim state belonged to India and said they would work to resolve other border issues.
India says China occupies 14,670 square miles (38,000 square km) of Indian territory, while Beijing has claims on the remote Indian state of Arunachal Pradesh.