The companies said 28 million customers in Londonwill be able to use their mobile phones to pay for goods and services at retailers simply by waving their handset against a reader.
Both are looking to expand the partnership to include other contactless services in ticketing, transport and rewards. MasterCard will provide the payment capabilities for the transactions.
This will be the biggest revolution in payments since plastic cards were introduced more than 40 years ago, they said.
The capacity to pay by mobile will emerge over the next few months from marketing schemes being set up by the firms.
Orange UK CEO Tom Alexander said more companies were looking to the mobile industry "to evolve" the way they do business with their customers. "A key part of our strategy at Orange is to grow and evolve our business in order to provide people with services beyond talk and text."
Antony Jenkins, CEO of Barclaycard, said, "There has been a lot of talk about mobile payments and now it is going to become a reality for our customers because of Barclaycard's commitment to contactless technology. I believe that all our UK customers will be able to use their mobile phones to pay for everyday items within three years."
The contactless technology Orange and Barclaycard will use is based on near-field communications (NFC) technology. Barclaycard has issued more than 1.5 million contactless enabled cards. It expects to reach 6 million people, including Barclays debit cards, by the end of 2009.
It is installing at least 10,000 contactless terminals at retail outlets. Cardholders simply need to touch their card against the reader instead of entering a Pin or signature.
Orange has been working on mobile payment technology since 2005. It has completed successful trials in France, Spain and the UK.
Barclaycard has 11.7 million UK and 11.6 million international customers, as well as 89,000 retailer/merchants.
MasterCard processes some 21 billion transactions a year, and provides analysis and consulting services in more than 210 countries.