Capping four days of negotiations, representatives of the P5+1 group of nations - the US, the UK, Russia, China, France and Germany - reached an agreement with Iran in the early hours in Geneva. The deal was formally announced by Catherine Ashton, the EU's foreign policy chief.
Under the deal, Iran agreed to give better access to inspectors and halt some of its work on uranium enrichment.
But Iranian negotiators insisted they still had a right to nuclear power.
In return, there will be no new nuclear-related sanctions on Iran for six months.
Iran will also stop enriching uranium beyond 5 per cent, the level at which it can be used for weapons research, and reduce its stockpile of uranium enriched beyond this point.
Iran will also receive sanctions relief worth about USD 7billion on sectors including precious metals.
The agreement -- described as an "initial, six-month" deal -- includes "substantial limitations that will help prevent Iran from creating a nuclear weapon," US President Barack Obama said in a nationally televised address.
US Secretary of State John Kerry, who joined the talks in Geneva yesterday, said the agreement would make the region safer for its allies, including Israel.
"Today, the US - together with our close allies and partners - took an important first step toward a comprehensive solution that addresses our concerns with the Islamic Republic of Iran's nuclear programme," Obama said.
"The first step that we've taken today marks the most significant and tangible progress that we've made with Iran since I took office," said the US President.
The deal addresses Iran's ability to enrich uranium, what to do about its existing enriched uranium stockpiles, the number and potential of its centrifuges and Tehran's "ability to produce weapons-grade plutonium using the Arak reactor," according to a statement released by the White House.
"Today, that diplomacy opened up a new path toward a world that is more secure -- a future in which we can verify that Iran's nuclear programme is peaceful and that it cannot build a nuclear weapon," Obama said.