Williams will run Toyota engines in Formula 1 for three years, starting in 2007.
Williams will run the same spec engines as the Toyota F1 team next season.
"This agreement is the cornerstone of Williams' challenge for the World Championship," says team principal Sir Frank Williams. "Toyota is an impressive and remarkable industrial giant, with the most phenomenal reputation for achieving the goals it sets itself. We're proud to have secured their support in our efforts to return to our competitive best."
Williams parted company with long-time engine partner BMW at the end of 2005 when BMW bought out Sauber to enter the championship as a team in its own right. This year Williams is in partnership with Cosworth but it was always speculated to be a stop-gap arrangement until a deal with Toyota could be finalised.
Toyota Motorsport president, John Howett, says Toyota is pleased to be selected as Williams' engine supplier. "We look forward to both teams using each other as a comparative benchmark from which each can improve its own performance, and to competing with each other at the front of the grid."
In a joint statement, Williams and Toyota say they see "significant benefits from a relationship based on robust on-track competition and close off-track cooperation."