The agreement will build on existing development programs for Aborigines and Torres Strait Islanders and enhance the level of service delivery.
It provides for joint action in a number of key areas including safer communities, housing and infrastructure, health and education, homelessness and economic development.
In a joint statement, Prime Minister John Howard and South Australian Premier Mike Rann said the agreement signalled the importance both governments placed on overcoming the disadvantages suffered by indigenous Australians.
"The commonwealth and South Australian governments are committed to tackling these issues in order to build functioning and sustainable communities," they said.
"The governments will continue to work together to reduce bureaucratic overlap and duplication, and with indigenous communities to respond to their needs in appropriate ways."
A similar agreement between the federal and the New South Wales governments was signed off on Tuesday.