The India base airline will operate out of Chennai in the south Indian state of Tamil Nadu.
"We have carefully evaluated developments in India over the last few years and strongly believe that the current environment is perfect to introduce AirAsia’s low fares which stimulate travel…," Group chief executive Tony Fernandes said in a statement.
AirAsia Investment Ltd (AAIL) had applied to Foreign Investment Promotion Board to form the airline and the joint venture will later seek approval from aviation authorities.
AirAsia will have a 49 percent stake in the joint venture which will operate out of Chennai catering to domestic Indian travelers.
AirAsia units in operating out of Malaysia and Thailand already connect Chennai, Bangalore, Chennai, Bangalore, Tiruchirappalli, Kochi and Kolkata to the countries of the Association of South East Asian Nations (ASEAN).
ASEAN has seen a travel boom with the region being made visa free.AirAsia pulled out of Colombo this year.
"AirAsia is confident that it can replicate its unprecedented success across Malaysia, Thailand, Indonesia and other joint ventures," the airline said.
AirAsia operates 118 aircraft and has 350 more on order.