It comes as Intel looks to further expand its manufacturing capacity and technology portfolio amid rising demand.
Intel is paying $53 per Tower share, well above a closing price of $33 on Nasdaq on Monday (February 14).
The transaction's expected to close in about 12 months and has already been unanimously approved by both boards.
The deal's still subject to certain regulatory approvals including approval from Tower's shareholders.
Intel said it intends to fund the acquisition with cash from its balance sheet.
Tower, the companies said, will remain independent until the deal closes.
Then, Tower will be integrated into Intel Foundry Services (IFS), which Intel established a year ago to help meet growing global demand for semiconductor manufacturing capacity.
Tower's Tel Aviv shares rose 48% in after hours trading on Nasdaq on Monday after news of a possible acquisition was reported.
