The announcement follows months of speculation about Cowell and Topshop owner Green's plans to work together. Cowell and Sony's project will focus on "the production and exploitation of music, television, film and digital content".
The venture, which will continue to use the name Syco, will be co-owned by Sony Music and Cowell. It will retain control of Syco television and music, which includes franchises The X Factor, Got Talent and acts such as Susan Boyle, Il Divo and Leona Lewis. The company will be based in London, but will also have offices in Los Angeles.
The US X Factor, which will air on Fox in 2011, is the first project under the new Syco banner.
"Over the past 20 years, Simon Cowell has been a great partner and is an integral part of the Sony Music global family," said Sony Music Entertainment CEO Rolf Schmidt-Holtz.
"We are extremely excited to be able to continue and further develop our relationship with Simon, and significantly grow the Syco venture."
Chairman and CEO of Sony Music Entertainment UK Ged Doherty added: "I am absolutely delighted that we have been able to extend our long and mutually beneficial partnership with Simon. He is an inspiring and stimulating business partner and working with him closely over the last ten years has been an absolute pleasure. With the launch of The X Factor in the US, we look forward to replicating the unprecedented success the show has had in the UK globally."
In a statement about the deal, Cowell said: "I have had a fantastic relationship with Sony for many years and I'm delighted we are launching this venture together."
Sir Philip Green will act as an advisor to Cowell and will be a shareholder in the company.