The Kampala-based Quality Chemicals Limited, which was launched by President Yoweri Museveni, will start producing antiretrovirals (ARVs) in January with help and ingredients from Indian giant drugmaker Cipla.
The firm will also manufacture artemisinin combination (ACTs), a therapy that treats malaria, the largest killer in the east African nation of 27 million.
"The government commits itself to its promise of purchasing the ARVs for AIDS patients and ACTs for malaria from the factory for hospitals," Museveni said at the launch ceremony.
Of the country's 250,000 patients in need of the life-prolonging drugs, only 80,000 have had access, according to official figures.
"The project offers Uganda a regular and cheap supply of medication," said Emmanuel Katongole, the company chief.
Starting January, the pharma will be making two million tablets per day -- 600 million tablets a year -- with an ambition of increasing to 1.2 billion tablets a year.
Extra ARVs will be exported to Kenya, Tanzania, Democratic Republic of Congo and Sudan.
AIDS has killed at least one million Ugandans since it was first diagnosed some 24 years ago, while a similar number carry the virus that causes the disease.
The country has managed to scale down its infection rates from as high as 30 percent in early 1990s to about 6 percent currently.
Uganda joins Egypt, Nigeria and South Africa as the only African nations with firms that produce generics. Mozambique plans to take the same direction.
At the end of 2005, around 40 million people lived with AIDS or HIV, nearly two-thirds of them south of the Sahara, according to UN figures.