The deal is Diamond's biggest yet, and will more than triple the size of the maker of Emerald nuts and Pop Secret popcorn.
Adding Pringles will make it a distant second in the snack business to PepsiCo's Frito-Lay, which controls nearly half of the market.
The move also lets P&G complete its exit from all its major food businesses. The maker of Tide and Pampers has sold off Folgers coffee, Jif peanut butter, Crisco Shortening and Sunny Delight drinks.
The Pringles deal will create a new company under the Diamond Foods name. P&G shareholders will get about 57 percent of the combined company and Diamond shareholders about 43 percent.
Diamond, founded in 1912 by a group of California walnut growers, was known for nuts in shells for most of its history. But since Diamond went public in 2005, an acquisition binge has broadened its array of snacks. It scooped up Pop Secret in 2008 and Kettle potato chips last year.
The Pringles transaction will dwarf those deals, more than tripling Diamond's revenue to about $2.4 billion a year.
"Pringles is an iconic, billion-dollar snack brand with significant global manufacturing and supply chain infrastructure," Diamond Chairman, President and CEO Michael J. Mendes said in a statement.
Salty and savory snacks such as Pringles are a growing business, according to market researcher NPD Group, appealing to consumers who are "on the go."
Pringles was the eighth-largest sweet and savory snack brand in the U.S. in 2009, according to the most recent data available from Euromonitor International.
Analyst Timothy Ramey of D.A. Davidson & Co. envisions Diamond approaching Pringles much like it did Pop Secret, for which it increased sales through more marketing and distribution.
"We have to believe that Diamond can breathe new life into (Pringles)," Ramey wrote in a client note.
Pringles would become the third billion-dollar brand sold off by P&G in recent years, after Folgers and osteoporosis drug Actonel. It leaves P&G with 23 brands with $1 billion or more in annual revenue.
Diamond's stock jumped $3.91, or 6.8 percent, to $61.13 in afternoon trading. It reached a new 52-week high of $63.96 earlier in the day. Procter & Gamble's stock fell 44 cents to $61.82.
Diamond says the addition of Pringles will more than double its snack sales in the U.S. and U.K., Pringles' two biggest markets. It could give Diamond a greater presence in convenience stores and help Pringles in grocery stores, analysts say.
The Pringles brand is more than four decades old and is sold in more than 140 countries. In recent years it has added many regional flavors, including mozzarella stick and marinara in North America, prawn cocktail in Europe, jalapeno in Latin America and seaweed in Asia.
The deal includes $1.5 billion in Diamond stock and the assumption of $850 million of debt. The combined business, whose headquarters will stay in San Francisco, will be led by Diamond's Mendes.
The amount of debt Diamond takes on could vary based on movements in its stock price before the deal closes. That could increase it by up to $200 million or reduce it by up to $150 million.
Procter & Gamble, which has chosen to focus more on more profitable categories such as health and beauty products in recent years, said the Pringles deal will likely be part of a "split-off" transaction in which stockholders can swap Procter & Gamble shares for Diamond stock.
The deal will give Procter & Gamble a one-time earnings boost of about $1.5 billion, or 50 cents per share.