The accord was signed by Prime Minister Koirala and Maoist leader Prachanda.
The Seven Party Alliance Government and the Maoists have finalised the Comprehensive Ceasefire and Peace Agreement.
The draft agreement was struck on November 8 and had been due to be signed last week but was postponed as both sides said some issues still had to be resolved. A Tuesday deadline was then set.
Under the deal, the rebels are to end their "people's war", join an interim government and place their arms and troops under UN monitoring. The Nepal Army is also supposed to be confined to quarters by Tuesday.
This is the third time that the rebels and the government have tried to hammer out a peace deal in the Himalayan nation. Two earlier attempts in 2001 and 2003 failed.
Welcoming the agreement reached between Nepal government and Maoists, India hoped it will end the "politics and culture of violence" there and asked all sides to strictly abide by their commitments to ensure the "historic opportunity" is not lost.
New Delhi said the "critical test" would be the implementation of the agreement on the ground and emphasized that it stands ready to help in every way.
"We believe the agreement reflects overwhelming desire of the people of Nepal for peace and stability," External Affairs Ministry spokesman Navtej Sarna said in New Delhi while welcoming the development.
"We hope this agreement brings to an end the politics and culture of violence and heralds the beginning of a lasting peace in order to let the people of Nepal exercise their right to decide their destiny through free and fair elections without intimidation," he said.
