The 50-50 joint venture will be capitalised at 80 billion won ($72 million) and start production of sapphire ingots and wafers from early next year, Samsung LED said in a statement.
The company, an affiliate of Samsung Electronics, said the deal is expected to help it secure supplies and meet the rising demand for light-emitting diodes (LEDs).
The deal comes amid market concerns about a global shortage of wafers after the March 11 earthquake and tsunami in Japan. Research firm IHS iSuppli said the disaster led to the suspension of a quarter of the global production of silicon wafers, which are used to make semiconductors.
But a Sumitomo Chemical spokesman quoted by Dow Jones Newswires said the planned tie-up was unrelated to the quake and tsunami.
"Sapphire ingot is a very important component for making wafers used in LEDs, but its price rose sharply last year so we did see only a limited supply of the material," a Samsung LED spokesman said.