"In the name of God!" Erdogan said standing next to Putin at the presidential palace in Ankara as he ordered through a video link the launch of the $20 billion dollar Akkuyu nuclear power plant project.
State television TRT showed workers already starting work on the ground as fireworks went off to mark the event.
The first stage is due to come online in 2023, the 100th anniversary of modern Turkey's founding, and be completed entirely in 2026.
"This scale of the project is difficult to exaggerate," Putin said at the ceremony. "This marks a new stage in the development of Turkey's economy."
Erdogan said: "The power plant will contribute to our energy security and also play an important role in the fight against climate change."
Turkey's Energy Minister Berat Albayrak, Erdogan's son-in-law, praised the Akkuyu project saying: "We are standing at a crucial juncture in realising the 63-year dream."
Turkey and Russia have forged burgeoning ties in recent months on a number of areas including energy as well as the Syrian crisis, despite differences on key policy areas.
"We are also in close cooperation with Russia to end as soon as possible the terror threat and clashes in Syria," Erdogan said.