The deal is the latest in Google's recent string of acquisitions, and follows the company's acquisition of robot-maker Boston Dynamics in December 2013 and gesture recognition start-up Flutter in October 2013. Google expects to close the Nest Labs deal in the next few months.
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Nest Labs makes a home thermostat capable of learning user behaviour. It will continue to be run by co-founder and chief executive Tony Fadell as a separate company, Google said in a statement.
The smart thermostats – which use sensors to establish if a building is occupied or not – are the brainchild of former Apple executives Fadell and co-founder Matt Rogers.
The company produces a smart smoke alarm that can distinguish burnt toast from a real fire; speak, instead of just beep; switch on its night light if it detects motion; and alert users to carbon monoxide.
Both products can be accessed remotely with a smartphone app that updates users on battery power and emergency alerts, according to the Guardian.
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Fadell was the head of Apple's music division until he left the firm in 2008 and is known as the "father of the iPod" for his early work on the device.
Fadell told the BBC he first came into contact with Google in 2011 through a chance meeting with the co-founder Sergey Brin, who liked the smart thermostat concept.
Partnering with Google will help Nest Labs realise its vision of the “conscious home” and change the world faster than if it continued solo, Fadell wrote in a blog post.
“We've had great momentum, but this is a rocket ship. Google has the business resources, global scale and platform reach to accelerate Nest growth across hardware, software and services for the home globally,” he said.
News of the acquisition sparked speculation about Google’s plans, with some commentators noting that it will expand Google's presence in consumers' homes.
Others see the move as a deeper push into the emerging market of app-controlled household devices, pointing out that it will lend momentum to establishing the so-called internet of things.
Analyst company Gartner predicts there will be 30 billion connected objects in 2020, each with its own internet protocol (IP) address, which has raised security and privacy concerns
Providers of platforms, devices, data and applications are becoming increasingly concerned with the channels and devices through which sensitive data flows.