The deal, formed as two joint ventures with Shanghai Oriental Pearl, gives Sony access to an estimated 500 million gamers in China.
China has had a ban on gaming consoles since 2000, citing their adverse effect on the mental health of young people.
But in January, the government said it will allow foreign firms to manufacture and sell consoles.
China’s gaming market, which is currently dominated by PC, mobile and online games, is seen as a key growth area for console makers.
The two partnerships are both with Shanghai Oriental Pearl, one gives Sony a 70% share and the other a 49% stake and both will operate out of Shanghai’s free trade zone.
In a statement to the Shanghai Stock Exchange, an executive from Shanghai Oriental Pearl says: “The joint venture will be based on the relevant state policies and will introduce quality and healthy video games that will adhere to China’s national conditions as well as the tastes of Chinese gamers.
“Sony will also co-operate with domestic game development teams to promote original products on Playstation platform, while further improving the Chinese gaming industry.”
PlayStation vs Xbox
Last week Sony said it aimed to nearly triple operating profits by next year.
Sony’s game console joint venture comes nearly one month after rival Microsoft said its Xbox One game console will go on sale in China in September.
Microsoft will launch the console in collaboration with BesTV New Media Co, a subsidiary of Shanghai Media Group.
Industry research from PriceWaterhouseCoopers estimates that China’s video-game industry will generate about $10bn (£6bn) in sales next year.