The two companies said Wednesday Microsoft's investment would give the Redmond, Wash., concern a 1.6 percent stake in Facebook, The New York Times reported.
"We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing," said Owen Van Natta, Facebook's chief revenue officer.
Under terms of the deal, Microsoft will sell the banner ads appearing on Facebook outside the United States, with the two companies splitting the revenue. Last year, Microsoft struck a deal with Facebook to run banner ads in the United States through 2011.
"Making this investment and expanding ... is a great win for not only for our two companies, but also our collective users and advertisers," said Kevin Johnson, president of the Platforms & Services Division at Microsoft.
Facebook, based in Palo Alto, Calif., said the investment will allow it to add employees, expand overseas and aggressively develop an advertising system tailored to its users.