Speaking at the signing ceremony, da Costa said the agreement has brought the two countries to a new phase of relations.
"Now we have not only a government-to-government relationship but also a people-to-people relationship," da Costa said.
Natalegawa said he hopes the border-crossing agreement will strengthen the relationship between the peoples of East Timor and Indonesia.
"We are pleased that today we are in the business of making it easier for our communities living in the border area to be able to interact," Natalegawa said.
The signing ceremony was attended by East Timorese President Jose Ramos-Horta, who negotiated the border pass with Indonesia while he served as foreign minister.