The deal marks the industry's first big consolidation in Southeast Asia, home to about 640 million people, and puts pressure on Indonesia's Go-Jek, which is backed by Alphabet's Google and China's Tencent.
As part of the transaction, Uber will take a 27.5% stake in the Southeast Asian company and Uber CEO Dara Khosrowshahi will join Grab's board.
Expectations of consolidation in Asia's fiercely competitive ride-hailing industry were stoked earlier this year when Japan's SoftBank Group made a multi-billion dollar investment in Uber.
SoftBank is also one of the main investors in several other big ride-hailing firms including Grab, China's Didi Chuxing, and India's Ola. Ride-hailing companies throughout Asia have relied heavily on discounts and promotions, driving down profit margins.
Uber, which is preparing for a potential initial public offering in 2019, lost $4.5 billion last year and is facing fierce competition at home and in Asia, as well as a regulatory crackdown in Europe.
"It will help us double down on our plans for growth as we invest heavily in our products and technology," Khosrowshahi said in a statement.
Grab said it will take over Uber's operations and assets in eight countries in the region, and will expand its food delivery services.