Polish Prime Minister Mateusz Morawiecki and his Czech counterpart Petr Fiala signed the agreement in Prague.
Fiala, speaking at a joint news conference, said the deal would bring benefits to Czech communities that have been affected by the mine, providing compensation of 45 million euros ($A71 million) to help finance infrastructure upgrades in the region affected.
Under the deal, Morawiecki said, the Czech Republic had agreed to withdraw its court challenge.
The deal comes after talks between the central European allies failed last year to settle a dispute over environmental harm caused by the massive mine.
Fiala's new government, which took office in December, revived the negotiations that focused on compensation and environmental safeguards such as an underground barrier to protect water sources.
The Czechs have complained the mine is sucking up underground water from wells in nearby Czech villages and causing other damage.
The row erupted after Poland decided to extend Turow's operation beyond an earlier announced deadline, because of its significance for the economy and energy supplies.
It has sought a deal to end legal disputes.
The EU's top court ordered Poland last year to halt mining pending an outcome to Czech legal challenges.
The court has also ordered a daily fine of 500,000 euros for Poland over its refusal to stop operations, which officials in Warsaw have also refused to pay.
An adviser to the top EU court sided with the Czech legal challenge earlier on Thursday, saying Poland breached EU law when extending the life of Turow without assessing the environmental impact.
