It is the social networking giant's biggest acquisition to date.
WhatsApp has more than 450 million monthly users and is popular with people looking to avoid text messaging charges.
In a statement announcing the deal, Facebook founder Mark Zuckerberg described WhatsApp's services as "incredibly valuable".
WhatsApp allows users to send messages over internet connections, avoiding text messaging fees. The company claims it is currently registering one million new users a day.
It makes money by charging users a subscription fee of $1 per year, although it offers a free model as well.
The BBC's Dave Lee explains why some analysts think it may yet prove to be a good buy.
Silicon Valley's newest billionaires The deal to buy it includes $4bn in cash and approximately $12bn-worth of Facebook shares, plus an additional $3bn in stock to WhatsApp's founders and employees at a later date.
On a conference call to discuss the deal, WhatsApp co-founder Jan Koum said he planned to operate the firm "independently and autonomously". He will also become a member of Facebook's board of directors.
"We're excited and honoured to partner with Mark and Facebook as we continue to bring our product to more people around the world," Mr Koum said in a statement.
Mr Zuckerberg said the prospect of a deal was first floated just 11 days ago.
The Facebook founder said he believed WhatsApp was on track to have a billion users, but insisted he had no plans to place advertising on WhatsApp's interface, saying he did not think ads were the best way to
make money from messaging systems.
Once the deal is finalised, Mr Koum and co-founder Brian Acton are set to become Silicon Valley's newest billionaires.
WhatsApp has about 50 employees in total.
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