The race will be on a street circuit around the capital Baku and incorporate its medieval old city, modern skyline and a view across the Caspian Sea.
The oil-rich state is in the Caucasus region where eastern Europe and western Asia meet and its F1 race is to be called Grand Prix of Europe.
That title has been held by races in Germany, Spain and the UK in the past.
The Azerbaijan government said the track layout had yet to be finalised.
But Azerbaijan's Minister of Youth and Sport, Azad Rahimov, said the start-finish straight would be in Azadliq Square, and the track would pass major landmarks in the city.
The Azerbaijan GP will pass the Azeri parliament building on the seafront promenadeThis is a model previously followed in Singapore, which first hosted a grand prix on a street track in 2008 and has since become one of the most popular events on the calendar.
Azerbaijan's government is funding the race to raise the country's global profile.
Rahimov said: "Our location at the crossroads of eastern Europe and western Asia is a new frontier for Formula 1 racing.
"Azerbaijan is a modern European country that has established a reputation as a centre of sporting excellence.
"The deal to bring Formula 1 racing to Baku is a very significant new chapter in our ongoing success to attract the world's largest sporting events to our country."
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