The company, which will work with the newly established Qatar Railways Development Company, plans to create a track that will allow trains to reach speeds of 350km/h.
The railroad network will take about 15 years to complete, but the national railroad and the local commuter system for Doha is expected to be 70 percent built by 2017 to support the tiny Gulf nation's bid for the World Cup in 2022 and the Olympics in 2020.
Qatar Railways Development Company will be 49% owned by Deutsche Bahn and 51% by Qatari Diar, Qatar's state-owned infrastructure and property development firm.
"This announcement represents the next step in the creation of this visionary Qatari project that will truly revolutionize the ease and convenience by which people travel," said Ghanim Bin Saad al-Saad, Qatari Diar's chief executive.
Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani and German transport minister Peter Ramsauer were also present when the deal was signed in Doha.
Deutsche Bahn said that it hoped to win more contracts in the Middle East following what it hoped would be a fruitful partnership with Qatar.