Instagram made the announcement today on their blog:

When Mike and I started Instagram nearly two years ago, we set out to change and improve the way the world communicates and shares. We’ve had an amazing time watching Instagram grow into a vibrant community of people from all around the globe. Today, we couldn’t be happier to announce that Instagram has agreed to be acquired by Facebook.

Every day that passes, we see more experiences being shared through Instagram in ways that we never thought possible. It’s because of our dedicated and talented team that we’ve gotten this far, and with the support and cross-pollination of ideas and talent at a place like Facebook, we hope to create an even more exciting future for Instagram and Facebook alike.

It’s important to be clear that Instagram is not going away. We’ll be working with Facebook to evolve Instagram and build the network. We’ll continue to add new features to the product and find new ways to create a better mobile photos experience.

The Instagram app will still be the same one you know and love. You’ll still have all the same people you follow and that follow you.You’ll still be able to share to other social networks. And you’ll still have all the other features that make the app so fun and unique.
We’re psyched to be joining Facebook and are excited to build a better Instagram for everyone.

Best,
Kevin

CEO, Instagram

The popular photo-sharing app maker Instagram will be acquired by Facebook for $1 billion in cash and stock in what is the social network’s biggest acquisition to date.

Facebook Chief Executive Mark Zuckerberg made clear in a statement that while he plans to integrate some aspects of Instagram into Facebook, he expects it to operate as an independent company.

“We will try to learn from Instagram’s experience to build similar features into our other products,” Mr. Zuckerberg said in a statement. “At the same time, we will try to help Instagram continue to grow by using Facebook’s strong engineering team and infrastructure.”

Facebook said the deal is expected to close later this quarter.

The deal caps a startling rise for a 15-month-old start-up with barely a dozen employees, a free app and no revenue.

Since being founded in the fall of 2010, the company has amassed more than 30 million users of its app.

Like many early-stage tech companies quickly building up large user bases, monetization has taken a back seat. While major retailers have taken to opening Instagram accounts to promote their brands, it’s not clear how the company was planning to create significant revenue, especially since its smartphone focus—the company doesn’t offer its content on a website—limits its ability to present advertisements.

In early 2011, Instagram raised $7 million in venture funding from Benchmark Capital that valued the company at about $25 million. It had also raised about $500,000 in seed money from Andreessen Horowitz and Baseline Ventures.