The deal, South Korea's second with a Latin American country after Chile, calls for the two countries to eliminate all tariffs within 10 years after it goes into effect.
It is expected to further open Peru's market to South Korean cars and electronic products, and to expedite imports of Peruvian agricultural and sea products, the South's trade ministry said.
Tariffs on South Korean automobiles with engines smaller than 3,000 cc will be scrapped in five years while duties on Peruvian coffee will be abolished after the deal comes into effect.
Two-way trade stood at $1.98 billion last year with South Korean exports to Peru reaching $944 million.
The deal will also help South Korea secure stable supplies of energy and natural resources, the ministry said. South Korea mainly imports resources such as zinc and iron.
Exports of South Korean heavy machinery, TVs, computers and other products are expected to increase sharply, the ministry said.
South Korea has free trade pacts with India, the Association of Southeast Asian Nations, Singapore and the European Free Trade Association.
A pact with the European Union awaits ratification. The deal with the United States was signed in 2007 but has hit problems, with US automakers and beef exporters demanding greater access to the Asian nation's market.