The acquisition, worth more than $A2.2 billion, unites one of the Internet's headline companies with one of its rapidly rising stars
Google chief executive Eric Schmidt issued a statement saying that the two companies were “natural partners to offer a compelling media entertainment service to users, content owners and advertisers."
"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," he said.
YouTube soared to online popularity after its launch in February 2005.
The company claims that more than 100 million videos are watched daily by visitors to the free website, which features content provided by users.
"Our community has played a vital role in changing the way that people consume media, creating a new clip culture," said YouTube co-founder Chad 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."
The price makes YouTube, a still-unprofitable startup, by far the most expensive purchase made by Google.
While some cynics have questioned YouTube's staying power, Google's betting it'll give it a lucrative marketing hub, as more viewers and advertisers switch from TV to the Internet.
Business as usual for YouTube
YouTube would continue to operate independently with its headquarters in San Bruno, California, after the acquisition is complete, according to Google.
All of YouTube's 65 employees were to remain with the company.
In unofficial Silicon Valley tradition, YouTube was launched on its meteoric rise from a garage. It announced a first round of funding of 3.5 million dollars from Sequoia Capital in November of last year.
Google was to pay for YouTube with shares of its own high-flying stock.
Analysts have touted a Google purchase of YouTube as a symbiotic alliance. By purchasing YouTube, Silicon Valley based Google would be able to apply its proven prowess for generating revenue through online advertising.
YouTube would provide Google traction in the online video-sharing market, where Google's own service of that kind has failed to gain traction.
Ahead of the announcement U.S. technology stocks gained ground offsetting concerns surrounding North Korea's nuclear test.
Google shares rose to their highest in more than five months after a source familiar with the matter said the Internet search company would announce a deal to buy YouTube.
"This is a very good move for Google strategically as it opens to them the possibility to grow in one Internet area where they were not very big - that is, video," said Steve Neimeth, portfolio manager for AIG SunAmerica Asset Management in Jersey City, New Jersey.