An alliance would come as foreign car makers such as Volkswagen, General Motors and Fiat Chrysler have struggled in India where nimbler rivals such as Suzuki and Hyundai have cornered roughly two-thirds of the market.
In May, GM said it would stop selling cars in India from the end of this year, drawing a line under two decades of battling in one of the world's most competitive markets where small cars make up the bulk of sales.
The potential alliance would explore Ford leveraging Mahindra's distribution reach within India and Mahindra looking to benefit from Ford's reach in other emerging markets, the companies said.
"Teams from both companies will collaborate and work together for a period of up to three years. Any further strategic cooperation between the two companies will be decided at the end of that period," they said.
Globally, traditional automakers are weighing how best to work on new, disruptive technology, from electric vehicles to autonomous driving, that require hefty investment and have turned companies such as Google and Tesla into rivals. One way is by joining hands.
Toyota said last month it planned to take a 5 percent share of smaller Japanese rival Mazda as part of an alliance that will see the two build a $1.6 billion U.S. assembly plant and work together on electric vehicles.