The Facebook-owned company also revealed it is working on its own handheld controller system called Oculus Touch.
The Rift headset will be released early next year. Until now, only a "developer" version had been sold.
It will compete with rival VR headsets such as Sony's Morpheus and HTC's Vive.
Google has made a more basic entry into the market with its Cardboard product, which uses a person's smartphone to create a VR effect.
The deal with Microsoft means Oculus owners will be able to stream Xbox One games to the headset and see them as if they are being viewed on a huge "home cinema" screen.
Microsoft's gaming boss Phil Spencer made a surprise appearance at the event to introduce the partnership.
Story & source: BBC
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