Areva SA, one of France's main nuclear power companies, will build two European pressurized reactors of 1,650 megawatts each at Jaitapur in the western Indian state of Maharashtra.
The agreement, valued at about $9.3 billion, was signed in the presence of Sarkozy and Indian Prime Minister Manmohan Singh.
The deal marked the first two of 20 nuclear reactors India wants to build to meet its soaring energy demand.
Foreign governments have been courting India to try to get a piece of that lucrative market, but there have been concerns that India's recently passed liability law might prove too onerous for international companies to risk entering the market here.
Indian officials assured France that their liability laws were in keeping with international standards and the security of nuclear operators was ensured, a French official said. The official spoke on condition of anonymity because he was not authorized to speak to the media.
Sarkozy and Singh later met to discuss regional security, trade and investment.
The talks were also expected to touch on plans for the structural reform of the international monetary system through the Group of 20 countries, currently headed by France.
Sarkozy, who arrived Saturday, is accompanied by his defense, foreign and finance ministers and nearly 60 business leaders.
No defense agreements are expected during the visit, but Sarkozy is likely to push for French companies to win contracts to supply military hardware.
French companies are negotiating to upgrade 51 Mirage-2000 jet fighters in the Indian air force. India is also in the market to buy 126 fighter jets, a deal worth $11 billion, and about 200 helicopters worth another $4 billion.
According to defense experts, India is expected to spend $80 billion between 2012 and 2022 to upgrade its military.
Sarkozy's visit also coincides with at least two important meetings with Indian business leaders. The French president is keen to attract Indian companies to invest in France, even as French companies are seeking a slice of India's booming economy.
Bilateral trade declined in 2009 due to global economic woes, but was on the upswing this year, said Vishnu Prakash, India's external affairs ministry spokesman. The two countries have set a trade target of 12 billion euros ($15.8 billion) for 2012.
Sarkozy is to visit Mumbai, India's financial and entertainment capital, before returning home Tuesday.
