The Cadbury board will advise its shareholders to accept a new offer of 840p a share - valuing the company at £11.5bn. Shareholders will also receive a dividend of 10p a share.
Earlier, Cadbury rejected Kraft's bid saying the offer was "derisory". Kraft previously offered 761p per share, valuing the company at £10.5bn - a bid Cadbury's chairman Roger Carr said was an attempt to buy Cadbury on the cheap.
The deal ends the animosity between the two companies, which continued for a few months before this announcement.
Shareholders are now expected to agree to the takeover.