Letta said 28 agreements had been signed including a landmark deal to ease customs procedures for Italian businesses exporting to Russia and one to establish a branch of Russia's Hermitage Museum in Venice.
"The one billion euros will help joint ventures and stimulate growth in our two countries," Letta said at a press conference, while Putin added that economic cooperation had been "at the centre of our agenda."
"Italy has to develop its international market and encourage more direct investments," Letta said after the talks in Trieste in northeast Italy.
Italian officials had said ahead of the talks that they would test Russian interest in investing in debt-laden flag carrier Alitalia, which is looking for a foreign partner, and Ilva, a troubled giant steel plant.
Italian media said energy giants Eni and Enel at the talks would also be looking to lower the prices for imports from Russia, as Italians struggle to make ends meet amid the country's longest post-war recession.
Among the deals signed was one for Italian shipbuilder Fincantieri to develop a drill ship for Russia's offshore oil industry and build a floating platform to carry nuclear submarine reactor compartments.
Letta said he and the Kremlin chief had also discussed preparations for peace talks in Syria and the agreement on Iran's nuclear programme, as well as the "instability" caused by Libya in the Mediterranean.
Putin said the agreement on Iran "will increase the security of the entire Middle East, including Israel".
Italian and Russian officials said that the new investment fund "will stimulate mutual investments" and is set to make its first payments next year.
"We seek potential joint investments in sectors such as food, engineering, machinery and other technology-based industries," said Maurizio Tamagnini, head of the Strategic Italian Fund who co-signed the agreement.
Trade turnover between Italy and Russia stood at €33.8 billion in 2012 and has increased by 24 percent between January and September compared to the same period last year, Russian officials said.
Silvio Berlusconi and the Kremlin were forced to deny rumours that Putin was preparing to offer the media tycoon and former prime minister Russian papers to flee legal troubles that are set to get him expelled from parliament on Wednesday.
"It is no secret that Berlusconi and I have had strong personal relations for many years, friendly relations, and this will not change as a result of the political situation," Putin said.
The talks come on the final leg of Putin's two-day trip to Italy, which has included an audience with Pope Francis and a dinner with scandal-tainted Berlusconi on Monday.
Activists led by transsexual politician Vladimir Luxuria held a small protest against homophobia in Russia near the summit, following a small rally for the jailed Russian punk group Pussy Riot in Rome.
"There is a violent and freezing wind coming from the East, it is the wind of repression and silence on human rights," Luxuria told around 200 protesters in Trieste."