The deal is part of Yahoo!'s aggressive strategy to increase its revenue streams and reduce its dependence on income from online advertising.
It is not known if the deal will affect Overture's existing deal to supply Yahoo!'s arch-rival MSN with paid-for listings.
Paid-for search is one of the fastest-growing online sectors, estimated to be worth $2 billion by the end of the year and $5 billion by 2006, according to research from the investment bank Piper Jaffray.
Advertisers bid against each other for the per-click fee they will pay for their link to appear in a search listing. Advertisers also bid against each other for particular key words or phrases.
Yahoo! is paying 0.6 of a share and $4.75 in cash for each Overture share.
Both companies still have to seek shareholder approval for the deal, which is likely to be complete in the final quarter of the year.