Expected to launch later in the year, the Sainsbury's digital video service will offer video on-demand and digital copies of movies from the major Hollywood studios, along with television titles.
Content includes new release movies on the same day as they are released on DVD and Blu-ray Disc, said Sainsbury's.
Powered by technology from Rovi Entertainment, the service will initially be available online, but later expand to internet connected devices, such as smart TVs, Blu-ray players, smartphones and games consoles.
The supermarket said that the move "reinforces Sainsbury's entertainment strategy and complements its rapidly expanding digital entertainment lineup that already includes music and ebooks".
Sainsbury's has recently been bolstering its digital offering via strategic acquisitions, including a deal to buy social online books retailer Anobii. It also launched a music download service earlier in the year, as the firm seeks to capitalise on customers getting their entertainment online.
Discussing the Rovi partnership, Sainsbury's group development director luke Jensen said: "Rovi was a natural choice to collaborate with for the launch of Sainsbury's Entertainment's digital video service given the company's market expertise, long-standing industry relationships, and proven technology.
"On demand streaming video is an exciting addition to our existing online offerings, and supports our customers as they progress from consuming content on physical disc to accessing their favourite entertainment on a range of devices, where and when they choose."
Rovi Entertainment Store general manager David Cook added: "Our agreement with Sainsbury's is an important win for Rovi as we continue our efforts to expand our presence and influence in international markets.
"Sainsbury's is an ideal company to collaborate with as they have the marketing acumen, as well as the consumer reach and loyalty needed to be successful and help introduce new consumers to the convenience, quality, and flexibility of online video entertainment."
The Sainsbury's digital video service will compete for customer's attention with subscription movie and TV streaming services LoveFilm and Netflix, but also the new NOW TV internet television service recently launched by Sky, which offers content via pay-per-view.