The venture, Beverage Partners Worldwide (BPW), will be scaled down in early 2007 to focus purely on ready-to-drink black tea. Both firms said the narrow focus would help BPW bolster market share in black tea.
"It is important to remember that 80 per cent of [BPW] business is in black tea, so it is clearly the area where we have the most experience and the widest reach," Nestlé spokesperson, François Xavier-Perroud, told BeverageDaily.com.
Several tea beverages have profited from consumer health and wellness trends, following reports that antioxidants in tea may help to ward off diseases, including some cancers.
The global tea market is worth about €790m (£540m, $941m). Green tea accounts for about 20 per cent of total global production, while black tea - green tea that has been oxidised by fermentation - accounts for about 78 per cent.
The BPW deal leaves Coca-Cola and Nestlé to compete openly in the blossoming non-black tea sector.
It will also make competition in the ready-to-drink coffee market increasingly fierce.
"Both companies recognise the significant potential of these rapidly growing segments and will expand their offerings in these categories by identifying innovative new products and creating a broader choice for consumers," the firms said.
In coffee, Nestlé has seen strong growth from its Nespresso product over the last year, and Coca-Cola has been working hard to break into the sector as part of plans to offset difficult times for its core fizzy soft drinks.
Nestlé's Xavier-Perroud said: "There's no doubt this company has a large amount of experience in coffee. We do believe we can be more successful than the joint venture has been."
The only exception to the BPW deal will be sparkling green tea drink Enviga, set to debut in the US in January as calorie-cutting beverage, which will continue to be marketed by the joint venture.
Drinking three 12oz cans of Enviga daily can burn an extra 60-100 calories in thin to normal weight people, studies organised by Nestlé and Coca-Cola have shown.
The 'negative calorie' effect is created by Enviga's optimum combination of green tea, caffeine and plant micronutrients, the firms said.