The alliance, announced on Tuesday, allows each of the companies to sell each other's unsold premium advertising inventory -- known as display ads -- by early next year.
Display units are big splashy units that appear on Web pages and attract marketers interested in branding their products or services. Typically, these ads command higher rates.
Rik van der Kooi, corporate vice president of the Microsoft Advertising Business Group characterized the partnership in a statement as a "rising tide that lifts all boats."
While the companies are striking a partnership, they still "actively compete" with each other for both advertiser spending and publisher partners, as well as maintain their own set of controls, according to the statement.
Both Facebook and Google Inc are expected to increase their share of online display advertising in the United States in 2011 by 9.3 percent and 16.3 percent respectively, according to estimates from research firm eMarketer.
Meanwhile, AOL, Microsoft and Yahoo are forecast to loose share, with Facebook expected to surpass Yahoo for the first time this year.