The tap on the huge Russian cigarette market - estimated at between 180 and 190 billion cigarettes annually - is expected to be running in just over two years.
Rothmans will own 75 per cent of the venture, called Rothmans Nevo. Investment by Rothmans is expected to be around pounds 55m, largely covering construction costs and plant and equipment.
Jan du Plessis, Rothmans' finance director, said the venture was a 'long-term project and will complement our existing licensing arrangements in Poland and the former Yugoslavia'.
Lord Swaythling, the chairman, added: 'The agreement with Nevo is intended to consolidate our position in the market following the sharp growth experienced in our export sales to Russia over the past 12 months.'
Cigarette brands that will be produced at the factory will include Rothmans and Dunhill, as well as Russian ones already made by Nevo.
The news was met favourably in the City, with an 8p rise in Rothmans' shares to 643p. Nyren Scott-Malden, tobacco analyst at BZW, said: 'It's the logical thing to do and although there will be no real return for several years, the longer-term outlook is good.'
The company's move contrasts with those made by other tobacco giants like Philip Morris and Reynolds, which have opted to buy established factories.