Israeli media reported that the deal worth approximately $15.3 billion was the largest ever cross-border acquisition for an Israeli tech firm.
It comes with Intel and Mobileye previously collaborating with German automaker BMW to develop self-driving cars.
Intel and Mobileye said they expected to combine to become a global leader in "autonomous driving" that could provide the technology at a lower cost.
"The combination is expected to accelerate innovation for the automotive industry and position Intel as a leading technology provider in the fast-growing market for highly and fully autonomous vehicles," it said.
"Intel estimates the vehicle systems, data and services market opportunity to be up to $70 billion by 2030."
Last year, BMW announced that it was joining forces with Mobileye and Intel on a self-drive project for "highly and fully automated driving" to be commercially available by 2021.
BMW announced in January it would deploy 40 self-driving vehicles for tests in the United States and Europe.
In August, Mobileye and UK-based auto-equipment maker Delphi said they were teaming up to develop an autonomous driving system which would be ready for vehicle-makers in 2019.
Nearly all the major global automakers are involved in testing autonomous or semi-autonomous vehicles, with some expecting full autonomy within a few years.
'Data centres on wheels'
Mobileye, whose speciality includes systems for accident avoidance, has concluded an agreement with Volkswagen on road data technology as well.
The Israeli firm was founded in 1999. It has developed real-time camera systems used to avoid accidents with the help of algorithms that interpret the data.
Its proprietary EyeQ5 computer vision processor gets input from the 360-degree surround view sensors as well as localisation.
Drivers may be familiar with its system that warns when they are approaching too closely to another vehicle or pedestrian.
Mobileye co-founder Ziv Aviram said of the acquisition that "together, we will provide an attractive value proposition for the automotive industry."
"We expect the growth towards autonomous driving to be transformative," he said in the statement.
"It will provide consumers with safer, more flexible, and less costly transportation options, and provide incremental business model opportunities for our automaker customers."
The companies said the transaction, approved by the boards of both Intel and Mobileye, is expected to close within the next nine months.
"As cars progress from assisted driving to fully autonomous, they are increasingly becoming data centres on wheels," the statement said.
"Intel expects that by 2020, autonomous vehicles will generate 4,000 GB of data per day, which plays to Intel’s strengths in high-performance computing and network connectivity."
Israeli officials were also touting the deal as a sign of confidence in the country's high-tech sector -- an industry that has given it the nickname the "start-up nation".
"What's important now is that the production remains in Israel, where some 300 international companies are located," Israeli Economy Minister Eli Cohen told army radio.
Intel has long had operations in Israel, opening its first development centre in 1974.
In 2014, the firm announced it was to invest close to $6 billion in upgrading its Israeli production facilities.
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