'Now begins a new era,' Mr Chissano said. 'This moment gives the Mozambican people the most precious and noble gift of peace.' Mr Chissano and Mr Dhlakama embraced on signing.
A ceasefire will take effect as soon as the treaty is ratified by the Mozambique parliament, which diplomats said will probably be later this week. It will mark the theoretical end of southern Africa's last major conflict which began shortly after independence from Portugal in 1975.
Millions have been forced to flee their homes by the fighting between government troops and Mr Dhlakama's Mozambique National Resistance (Renamo). Countless others have died of hunger.
The treaty includes a provision for a new army, comprising 30,000 men drawn equally from both sides. Troops and rebels must report to assembly points within a month of ratification.