"We together will begin co-leading the development of a new European-developed deep precision strike capability with a range of 2,000 plus kilometres (1,250 miles)," Britain's John Healey said at a bilateral meeting in Berlin.
Germany's Boris Pistorius said work on the missiles had begun and would be critical for European security.
"The current threat situation makes it absolutely clear that we need to close all capability gaps," Pistorius said. "And we need to do that as quickly as possible."
Europe's governments have looked to establish more independence of US military technology amid doubts about Washington's future commitment to Europe's security.
Germany's Chancellor Friedrich Merz said in February that Europe would have to work to achieve "real independence" from the United States whose leadership now seemed "largely indifferent" to the fate of Europe.
The defence ministers also pointed to other projects their countries were working on, including joint procurement of torpedoes and the establishment of a new forum bringing together defence firms from each nation.
"European nations in NATO must do more and step up to strengthen European security," Healey said. "The best way to do that is for leading nations like Germany and the UK to do more together."
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