The head of the conservative People's Party (OVP), Sebastian Kurz, has struck a coalition deal with the far-right Freedom Party (FPO).
The FPO is tipped to lead the foreign, interior and defence ministries, while its leader, Heinz-Christian Strache, is expected to be deputy chancellor.
When the OVP won Austria's election on 15 October it did so with a hard line on immigration - a policy that often overlapped with that of the FPO.
The FPO was third, taking 26% of the vote.
Mr Kurz - who at 31 is Europe's youngest leader - held a joint news conference with Mr Strache and told reporters: "Our aims are quite clear.
"We want to ease the tax burden for people, we want to strengthen our economy, which will bolster our social system."
Mr Kurz added: "And first and foremost we want to increase security in our country, including by combating illegal immigration."
While Mr Kurz has said his administration will be pro-European, both he and Mr Strache have expressed doubts about further social integration.
The two men are presenting their agreement to Austrian President Alexander Van der Bellen, a former Greens leader who narrowly beat the FPO in a presidential vote in 2015.
Mr Van der Bellen, who has the right to reject ministers, has said a new government could be sworn in early next week if everything went to plan.
"In these talks (since the election) we have agreed, among other things, that it is in Austria's national interest to continue to stay in the centre of a strong European Union," he said.
The FPO's success mirrors that of similar parties across Europe. Geert Wilders' Freedom Party is now the second-largest in the Netherlands, the Front National in France was involved in a run-off for the presidency in May and representatives from Germany's AfD have entered the Bundestag.
When the FPO was last in government, under the late Joerg Haider, other EU countries imposed sanctions on Vienna in protest.