The accord, signed by justice ministers of both countries in Tehran late on Sunday according to official news agencies, follows a raid by Iraqi forces on April 8 on Camp Ashraf, home of the People's Mujahideen Organisation of Iran, which wants to overthrow the Iranian government.
According to the UN human rights chief, 34 people were killed in the raid on the camp which was set up under former Iraqi President Saddam Hussein but which the new government has said must close.
Iraq, Iran and the United States consider the PMOI, also known as the Mujahideen Khalq Organisation (MKO), terrorists though the European Union removed the group from its terrorism blacklist in 2009.
The group, seeking the overthrow of Iran's Islamic government, mounted attacks on Iran from Iraq before Saddam's 2003 downfall. In the 1970s, it led a guerrilla campaign against the US-backed Shah of Iran, including attacks on US targets.
Saddam gave it refuge in Iraq in the 1980s and some of its fighters joined him in the 1980-1988 war against Iran. The group surrendered its weapons to US forces after the 2003 invasion that ousted Saddam.
The camp's fate has been in question since the US military turned it over to Baghdad in 2009 under a bilateral security agreement. Baghdad has said Ashraf residents would be given until year-end to leave the country.