The two parties have spent the last few weeks working to agree a policy framework.
The mould-breaking agreement comes just days before the county council meets to approve more details of its plan to switch from the existing committee system to a new structure based on an executive and leader.
The agreement proposes that the council has a Conservative leader and Liberal Democrat deputy, with nine executive portfolios covering the whole range of council activities.
The new joint administration has invited the Labour group to chair the council's scrutiny committees, in recognition of the democratic importance of having an effective opposition. These committees will oversee and hold to account the work of the executive.
Conservative group leader Keith Mitchell said: 'Oxfordshire faces challenging times ahead. We have to win the argument for a fair share of national resources. We want high quality public services that are responsive to the needs of individuals. We want Oxfordshire to be an attractive place for people to come to work, to shop, to learn or just to enjoy themselves. We have to balance: accessibility against congestion: the provision of affordable housing for key workers against the quality and charm of our city, towns and villages: the economic success of the region against our wish to preserve the best of our natural heritage. Above all, we need to work in partnership with our colleagues in district, town and parish councils and in the health, academic, public and private sectors to make Oxfordshire a better place for all of its citizens. This will take leadership. I believe this joint executive can provide that leadership at this critical time and I pledge my commitment as the leader of the council to work tirelessly to deliver on our ambitions for the county.'
Liberal Democrat group leader Margaret Godden said:
'Our two parties bring different strengths and aspirations to this administration and I believe that, if we draw on both, we will be able to give a high quality of leadership to the council. Labour will have an important role on the scrutiny committees, so that as far as possible we shall continue the open and democratic style of our present system. problem with that system has been the difficulty people had in understanding it. The new structure will be easier for the public to relate to. It also gives us a chance to re-examine how we involve people in our decision-making, whether they are individuals, communities, interest groups or other councils and public bodies. Oxfordshire's problems, especially its financial difficulties, will not go away. But I am confident this administration is well-placed to face up to them, build on the many existing good achievements of the council and serve the county well.'
County council chief executive Richard Shaw said: 'This is an exciting time. Much work has gone into deciding how best to improve our ways of working, both in terms of modernizing existing structures and in terms of political leadership.
'We are all committed to improving services for the people of Oxfordshire. These new arrangements will make for stronger and more effective governance and I look forward to supporting councilors in their new roles.'