The agreement marked a rare moment of cooperation between the two rivals, especially coming just weeks before the South kicks off joint military exercises with the United States that have been vehemently denounced by Pyongyang.
Officials from both sides meeting in the border truce village of Panmunjom, decided the reunion would be held February 20-25 at the North's Mount Kumgang resort, the South's Unification Ministry said.
"We hope that the latest agreement will be smoothly carried out to ease the suffering and pain of separated families," the ministry said in a statement.
Any sign of accord between North and South Korea tends to be greeted with optimism, given their perennial inability to cooperate on even the most basic trust-building measures.
However, both sides have been here before, and observers warn that setting dates does not necessarily mean the event will take place.
The two Koreas had agreed to hold a reunion last September but, even as the chosen relatives prepared to make their way to Mount Kumgang, Pyongyang cancelled at the last minute, citing "hostility" from the South.
And there are widespread concerns that the families could end up being disappointed again, given the unresolved tensions surrounding the South-US military drills that are scheduled to begin late February.
North Korea has warned of dire consequences if the exercises go ahead, while Seoul and Washington have dismissed any possibility of their cancellation.
The annual drills are always a diplomatic flashpoint on the Korean peninsula, and resulted last year in an unusually sharp and extended surge in military tensions.
Yoo Ho-Yeol, professor of North Korean Studies at Seoul's Korea University, cautioned that the North might use the reunion agreement as a bargaining chip.
"Rather than cancelling the event again, it may try to extract concessions, like a scaling down of the joint military exercises," Yoo said.
US defence officials have already indicated that -- unlike the 2013 drills -- this year's version would not involve an aircraft carrier or strategic bombers .
Sixty years with little or no contact
Millions of Koreans were separated by the 1950-53 war, and the vast majority have since died without having any communication at all with surviving relatives.
Because the Korean conflict concluded with an armistice rather than a peace treaty, the two Koreas technically remain at war and direct exchanges of letters or telephone calls are prohibited.
Up to 73,000 South Koreans are wait-listed for a chance to take part in one of the reunion events, which select only a few hundred participants at a time.
The reunion programme began in earnest in 2000 following an historic inter-Korean summit. Sporadic events since then have seen around 17,000 relatives briefly reunited.
But the programme was suspended in 2010 following the North's shelling of a South Korean border island.
North Korea wants the South to resume regular tours to Mount Kumgang, which had provided a much-needed source of hard currency in the past.
South Korea suspended the tours after a woman tourist was shot dead by North Korean security guards in 2008, and it has repeatedly rejected the North's efforts to link their resumption to the family reunion issue.
Pyongyang is also pushing for a resumption of six-party talks on its nuclear programme -- a long-stalled process involving the two Koreas, China, Japan, Russia and the United States.
Seoul and Washington insist substantive dialogue can only begin after Pyongyang demonstrates a tangible commitment to abandoning its nuclear weapons programme.
Since the beginning of the year, North Korea has been on something of a charm offensive, making a series of conciliatory gestures that critics have largely dismissed as a calculated bid to assume the moral high ground ahead of the South-US military exercises.
Past North-South family reunions have been hugely emotional -- almost traumatic -- affairs, with many of the elderly participants breaking down and sobbing as they cling to each other.
The events typically last several days and the joy of the reunion is tempered by the pain of the inevitable -- and this time permanent -- separation at the end.