Uzbekistan is building a 120-kilometre link to go through the imposing Kamchik pass and China will finance its most difficult tunnels for $350 million, according to the documents.
The existing rail link between Uzbek capital Tashkent and its densely populated Fergana valley in the east runs through northern Tajikistan's mountainous Sughd province.
But Tashkent wants to build a new link independent of Tajikistan before 2016. The preliminary cost of the project is $1.9 billion, according to reports.
The two neighbouring countries have a history of troubled relations, with no air service linking their capitals and a border that has not been properly demarcated.
The former Soviet republics frequently trade accusations of rail network sabotage and of blocking trade.
Passenger train travel was suspended over a decade ago and only limited cargo trains use the existing line.
Tajikistan, the poorest country in Central Asia, has been moving ahead with a massive Rogun dam project that Uzbekistan fears could badly hurt its cotton industry by cutting off water supply.
The deal was inked during the visit of Chinese Prime Minister Li Keqiang to Uzbekistan, where he met President Islam Karimov late Thursday. Other deals aim to boost cooperation in banking, tax, tourism and culture.
Since 2002 China has invested more than $6 billion in the in the Uzbek economy, and trade between the two countries reached $3.4 billion last year.
Li is attending the 12th meeting of the Shanghai Cooperation Organisation, a regional security group led by China and Russia.