Steps by North and South Korea to improve their relations are running parallel to a bid by the United States and its allies to press North Korea to give up its nuclear weapons and ballistic missile programmes.
The opening of the joint liaison office at Kaesong, just inside the North Korean side of the border, comes days before North Korean leader Kim Jong Un and South Korean President Moon Jae-in are due to hold their third meeting this year.
The two Koreas previously communicated by fax and special telephone lines, which were often severed when their relations took a turn for the worse.
Now they will now be able to "directly discuss issues 24 hours, 365 days", South Korea's Unification Minister Cho Myoung-gyon said at the ceremony.
The office will be staffed by up to 20 people each from the two sides with the South Koreans on the second floor and the North Koreans on the fourth floor of the four-story building.
Vice minister-level officials will head their teams at the office and will attend weekly meetings, the South Korean Unification Ministry said.