The Tijuana River flows through the northwestern Mexican state of Baja California and empties into the Pacific Ocean off the coast of Southern California in the United States.
US authorities say billions of gallons of untreated wastewater from Mexico has polluted American waters for decades.
"I smelled what a lot of residents in the community live through," US Environmental Protection Agency administrator Lee Zeldin said, recalling a recent visit during the signing ceremony Thursday.
"I saw the degradation of the Tijuana River Valley. I heard about the beaches that were closed."
The actions both countries committed to seek to "solve the Tijuana River wastewater problem once and for all," Mexico's environment minister Alicia Barcena said before signing a memorandum of understanding in Mexico City.
During her regular morning press briefing Thursday, President Claudia Sheinbaum referred to the pact as "a good example of how sitting down with technical teams can solve a problem."
Under the agreement, Mexico pledged to secure funding equivalent to $13.3 million to begin construction this year on a project to divert treated water effluent.
Mexico will also accelerate rehabilitation of collection and interception pipelines and wastewater treatment plants under previously agreed projects.
For its part, the United States will finance work to complete the rehabilitation of a pumping station and collection pipelines for the Tijuana River, according to the agreement released by the US environmental agency.
The agreement comes a week before 30 percent tariffs on all Mexican exports announced by US President Donald Trump take effect on August 1.
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