PSA, the parent company of both brands, announced that an agreement has been signed to establish a joint venture between the brand and Saipa, Iran's second auto manufacturer.
The French company had already finalized in June a joint venture between Peugeot and Iran Khodro.
DS, the third group brand, is distributed in the country since early 2016.
Under the agreement, PSA will take possession of half of the existing plant Saipa Kashan, a city halfway between Tehran and Isfahan.
"This plant is almost new, since it was opened six years ago. We'll produce three Citroen vehicles from 2018, "said Jean-Christophe Quemard, Head of the Middle East and Africa of PSA.
The new joint company plans to invest 300 million euros in engineering and industrial means to establish the French brand. The production capacity could reach 150,000 units by 2021. For their part, Peugeot and Iran Khodro invest 400 million euros to produce, in 2017, some 200,000 vehicles.
PSA is the first international automaker to sign local industrial agreements with Iran because it has managed to establish banking channels to the country.
"Even if it's complicated, we found a solution. This circuit does not include any French bank, "said Jean-Christophe Quémard.
To optimize costs, PSA intends to import fewer parts and produce 70% of its vehicles from parts manufactured locally.
The new Citroën joint venture is expected to be exported throughout the Middle East and Africa.