United Technologies says it expects to finish the separation in 2020.
Chairman and CEO Gregory Hayes said in a statement that by splitting up its businesses, each company will be better positioned.
"As standalone companies, United Technologies, Otis and Carrier will be ready to solve our customers' biggest challenges, provide rewarding career opportunities, and contribute positively to communities around the world," Hayes said.
United Technologies said Hayes will oversee the split and stay in his roles as chairman and CEO of United Technologies.
The industrial giant has scheduled an investor call for Tuesday at 8 a.m., ET.
Shares of United Technologies gained more than 2 percent in after-hours trading.
Activist investor Dan Loeb had pushed for United Technologies to split up into three businesses. CNBC previously reported that Loeb's Third Point hedge fund had suggested in a letter breaking the company into an aerospace company, elevator company Otis and UTC Climate, Controls & Security. In that April letter, the hedge fund also disclosed a "significant stake" in United Technologies.
At the time, the company said it "disagrees with several of the assertions contained in the Third Point letter" but "is always open to the input of shareholders."
Last week, the industrial giant received key antitrust approval from China for its $23 billion purchase of aircraft parts maker Rockwell Collins. The deal is the largest in aerospace history. The companies combined brought in nearly $67 billion in revenue last year.
United Technologies also updated its financial outlook to include its acquisition of Rockwell Collins. The company said it now expects 2018 sales between $64.5 billion and $65 billion, up from its previous range of $64 billion to $64.5 billion.
It said it expects the Rockwell Collins deal to lead to a 10-cent impact on earnings per share. United Technologies is now forecasting adjusted earnings between $7.10 a share and $7.20 a share.
For fiscal 2019, the company said it expects the aircraft parts maker to contribute between 15 cents and 20 cents to its adjusted full-year earnings per share.
United Technologies said it has tapped Evercore and Goldman Sachs as financial advisors on the split. It also said it has hired Wachtell, Lipton, Rosen & Katz as its legal advisor.