Bolivian President Evo Morales, who signed the pact in Buenos Aires with Paraguayan counterpart Fernando Lugo, described it as historic.
Argentina has played a key role in resolving the dispute.
Mr Morales blamed multi-national oil firms – in their quest for natural resources – for fuelling the Chaco war, which claimed 100,000 lives.
The key energy companies operating in the region at the time were US Standard Oil, backed by Bolivia, and the Anglo-Dutch Shell Oil company, supported by Paraguay.
President Lugo expressed the hope that natural resources could now “be developed and used by both countries without any foreign intervention.”
Rich in mineral and energy resources, Bolivia is one of South America’s poorest countries.
From the bbc