The deal combines one of the largest and fastest-growing online video entertainment communities with Google's expertise in organising information and creating new models for internet advertising.
Google said that, after the stock-for-stock acquisition, YouTube would operate independently to preserve its successful brand and community.
Currently videos are viewed more than 100 million times every day on YouTube with 65,000 new videos uploaded daily.
Retaining independence also means it will not clash with Google's own video service.
"Our community has played a vital role in changing the way that people consume media, creating a new clip culture. 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," said Chad Hurley, CEO and co-founder of YouTube.
"I'm confident that with this partnership we'll have the flexibility and resources needed to pursue our goal of building the next-generation platform for serving media worldwide."
Mr Hurley, 29, and Steve Chen, 27, founded the site in a California garage, in February 2005.
They broke news of the sale to YouTube community members in a video address in which they said the deal would help provide a better, more comprehensive experience for users.
"The YouTube team has built an exciting and powerful media platform that complements Google's mission to organise the world's information and make it universally accessible and useful," said Eric Schmidt, CEO of Google.
"Our companies share similar values; we both always put our users first and are committed to innovating to improve their experience. Together, we are natural partners to offer a compelling media entertainment service to users, content owners and advertisers."
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