The deal is the biggest outsourcing contract IBM has signed in Europe, and saw it beat off competition from services rival EDS.
Under the terms of the contract, which is expected to run between seven and ten years, IBM will provide services support and - with the help of a new partnership - develop new applications for Fiat.
The partnership has been formed between IBM, two of its Italian subsidiaries (one of which specialises in SAP systems) and two of Fiat's subsidiaries. It will employ around 2,600 people.
Work will not get under way until the initiative is granted approval from the relevant anti-trust authorities, which IBM expects to happen by the end of June. The company said in a memorandum of understanding that it anticipates around $614m a year in new revenue from the contract.
IBM is expected to announce a similar sized deal in the UK this week. About 40% of IBM's revenue came from services last year.