Google is buying video-sharing website YouTube for $1.65bn (£883m) in shares after a weekend of speculation that a deal was in the offing.
YouTube is growing in popularity
The two companies will continue to operate independently, Google said as it announced the news on Monday.
YouTube, launched in February 2005, has grown quickly into one of the most popular websites on the internet.
It has 100 million videos viewed every day and an estimated 72 million individual visitors each month.
"The YouTube team has built an exciting and powerful media platform that complements Google's mission to organize the world's information and make it universally accessible and useful," Google chief executive Eric Schmidt said in a statement.
He said the two companies were "natural partners" to offer a media entertainment service to users, content owners and advertisers.
Mr Schmidt also told investors that YouTube will be "one of many investments" Google plans to make in the video field.
However, the company will keep operating its own Google Video as a separate operation.
YouTube will retain its brand, and its 67 staff, including co-founders Chad Hurley and Steve Chen, will keep their jobs.
"Our community has played a vital role in changing the way that people consume media, creating a new clip culture," said Mr Hurley.
"By joining forces with Google, we can benefit from its global reach and technology leadership to deliver a more comprehensive entertainment experience for our users and to create new opportunities for our partners."
According to Comscore World Metrix, YouTube's audience has soared from 2.8 million unique users one year ago to 72 million users in August 2006.
The announcement came after a day of distribution deals drawn up by the pair.
Universal Music Group has signed a distribution deal with YouTube, which will protect the rights of the music firm's artists.
YouTube also says it has signed a deal with CBS, which will offer short-form video programming, including news, sport and entertainment on YouTube.
Google has also signed distribution deals of its own, with Sony BMG and Warner Music to offer music videos.
The Google deals should enable internet users in the US to view music videos, artist interviews, and other footage from the two firms on Google video for free from this month.
The content is sponsored through a Google advertising-supported revenue-sharing agreement.
Google also said that in addition to the advertising-supported video content, music videos from Warner would be available for purchase as downloads at $1.99 each.
As part of YouTube's deal with CBS, the companies will share revenue from advertising sponsorship of CBS Videos.