The strategic partnership initially involves WPP's media buying arm GroupM, and its recently acquired ad sales house, 24/7 Real Media.
WPP Digital is expected to join the collaboration at a later stage.
WPP agencies will develop a proprietary media trading platform via 24/7 Real Media that connects to Yahoo!'s Right Media Exchange, the internet giant's own digital trading platform which it acquired in October 2006.
WPP agencies and 24/7 Real Media will develop custom trading strategies, which can then be put into practice through the Right Media Exchange on a targeted and cost-effective basis.
Mark Read, WPP's director of strategy and chief executive of WPP Digital, said: "More and more, we see the need for agencies and media and technology companies to work together to create a new level of value.
"We are very pleased to have established this partnership with Yahoo! which, enabled by our earlier acquisition of 24/7 Real Media, will turn this vision into a reality."
WPP will also work with Yahoo! to develop a WPP marketplace, giving agencies at the world's second largest advertising group access to inventory.
The group will also be able to draw inventory for the WPP marketplace from Yahoo!'s owned and affiliated networks and 24/7's Global Web Alliance.
The initiative is also planning to make the marketplace open to third party publishers.
Irwin Gotlieb, the global chief executive of GroupM, said: "This partnership with Yahoo! will give our agencies and, in turn, our clients, an advantage in securing more relevant, high-quality digital media inventory.
"And, it will be aggregated to our bespoke needs, at the best value for our clients."
Collaborations between advertising groups and internet companies have had a chequered past.
In January, Sir Martin Sorrell, the chief executive of WPP, attacked his rival Maurice Levy at January's World Economic Forum over a joint initiative with Google.
He suggested that a recently announced partnership between Levy's Publicis Groupe and Google lacked substance, an accusation the French ad man would be hard pushed to return over this latest tie-up.
Publicis said its partnership with Google merely involved both companies swapping staff in a bid to pool their respective creative and technical know-how.