Fiat is set to become the world's 7th largest car group after agreeing to buy the remaining 41% of Chrysler it does not own.
The Italy-based vehicle manufacturer has held a majority stake in Chrysler since 2009 through its Fiat North America subsidiary.
It has held protracted negotiations with stakeholder Veba Trust, a trust which looks after medical benefits for 117,000 retired Chrysler workers and their dependents, and has now agreed that Chrysler and Fiat will pay the trust an initial $3.65bn (£2.2bn) for its equity.
Once the deal is completed, Chrysler will pay a further $700m to Veba.
Fiat's chief executive, Sergio Marchionne, plans to widen the company's global reach.
Sergio Marchionne, chief executive of Fiat and chairman and CEO of Chrysler Group, said: “In the life of every major organisation and its people, there are defining moments that go down in the history books.
"For Fiat and Chrysler, the agreement just reached with the VEBA is clearly one of those moments. I will be forever grateful to the leadership team for the support and unwavering dedication shown to the integration project that today has taken its final shape.
"The unified ownership structure will now allow us to fully execute our vision of creating a global automaker that is truly unique in terms of mix of experience, perspective and know-how, a solid and open organisation that will ensure all employees a challenging and rewarding environment.”
Click here to read AM's recent analysis of Chrysler's UK operation.