In a news release, Bosch said 1,000 employees worldwide from both companies will be involved in the partnership "at peak times," and both companies are looking to recruit new employees as part of the project.
It is unclear how much both companies plan to invest in the alliance. A spokesman for Bosch said VW and Bosch have agreed not to disclose financial details.
News of a potential alliance between the two German automotive giants was first reported in December by the German newspaper Handelsblatt. Reuters, citing the newspaper, said VW plans to invest a "triple-digit million euro amount as part of the deal."
The companies said they will develop a "state-of-the-art, standardized software platform" for "partially and highly automated driving," with the goal of having the platform be used in all "privately used vehicle classes" sold by the VW Group. Components developed by the partnership will be available to be integrated into other automakers' vehicles, according to the news release.
Cariad and Bosch said their partnership will focus on "data-driven" software development, making use of data from road traffic and artificial intelligence.
"The best proving ground for the development of automated driving is road traffic. With the help of one of the world's biggest connected-vehicle fleets, we will gain access to a huge database," Mathias Pillin, president of Bosch Cross-Domain Computing Solutions, said in a statement. "This will allow us to take automated-driving systems to a new level.
"All our customers will be able to benefit from this."
While the partnership is focused on Level 2 and Level 3 systems, Bosch and Cariad said they also have agreed to "examine the possibility of joint development targets" for fully self-driving technology.