The US$600 million (EUR405 million) rail line will connect the eastern Turkish city of Kars with the Azerbaijani capital, Baku, on the Caspian Sea, via Georgia and its capital, Tbilisi.
The project is one of several projects to link oil-rich Azerbaijan and Central Asia with Turkey and European markets while bypassing Russia. An oil pipeline from Baku to the Turkish Mediterranean port of Ceyhan via Georgia was opened last year, and a gas line along a similar route is in the works.
At the ceremony in the Georgian village of Marabda, Georgian President Mikhail Saakashvili said that for his country the new railway will become "a window to Europe."
Turkish President Abdullah Gul called the event historic. "We will link Baku and Tbilisi with London, we will link China with London," he said at the ceremony that was shown live by several Georgian television channels.
Azerbaijan's President Ilham Aliyev said the rail link would make his country and Georgia "stronger and more independent."
Oil-rich Kazakhstan, a Central Asian nation that lies east of Azerbaijan across the Caspian Sea, has pledged at least 10 million tons of cargo for the new railway. Kazakhstan, which in the east borders China, is also a major exporter of agricultural goods.