FanDuel, which was founded in Edinburgh in 2009, has entered a merger agreement with DraftKings.
The transaction, which is subject to regulatory approval, is expected to close in the second half of next year.
FanDuel has offices in Edinburgh and Glasgow but moved its headquarters to New York several years ago.
DraftKings has its headquarters in Boston.
The companies offer online fantasy contests across professional sports in the US, Canada and the UK.
There are an estimated 57 million fantasy players in the US alone.
Both companies have been facing regulatory and legal challenges to their industry, with regulators in some US states ruling that fantasy sports firms' activities amounted to illegal gambling.
In a joint statement on Friday, the companies said that by combining and streamlining resources they could "accelerate work with government officials to continue to develop a standard regulatory framework".
They also expect the "strategic merger of equals" to bring efficiencies and cost savings and help the combined company "accelerate its path to profitability".
FanDuel chief executive Nigel Eccles said: "Being able to combine DraftKings and FanDuel presents a tremendous opportunity for us to further innovate and disrupt the sports industry.
"While both companies have accomplished much already, this transaction will create a business that can offer a greater variety of offerings, appealing to new users, including the tens of millions of season-long fantasy players that haven't yet tried our products."
A Scottish tech firm which became a major player in the US fantasy sports market is to merge with its biggest rival.