In the $2.15bn (Â£1.3bn) deal, Coca-Cola will transfer its worldwide energy business to Monster.
In exchange, Monster will transfer its non-energy business, which includes Peace Tea and Hansen's Natural Sodas, to Coca-Cola.
The deal gives Monster access to Coca-Cola's global distribution system.
For Coca-Cola, the partnership will give it the opportunity to increase its market share in the fast-growing energy drinks market.
In a statement, Muhtar Kent, chairman at Coca-Cola said: "The Coca-Cola Company continues to identify innovative approaches to partnerships that enable us to stay at the forefront of consumer trends in the beverage industry."
Mr Kent added that "investment in Monster is a capital efficient way to bolster our participation in the fast-growing and attractive global energy drinks category".
Also in the same statement, Monster chairman Rodney C. Sacks said the deal gives the company "enhanced access to the Coca-Cola Company's distribution system, the most powerful and extensive system in the world. At the same time, we become The Coca-Cola Company's exclusive energy play".
The deal is subject to regulatory approvals, and both companies hope the transaction will close by early next year.
Monster shares surged 22% in after-hours trading on the news, while Coca-Cola shares rose 1.2%.
Coca-Cola is the world's largest beverage company, with more than 500 brands to its name, including Diet Coke, Fanta and Minute Maid.
The deal comes as consumers in developed economies and more mature markets are turning health-conscious.
One effect of that is they are staying away from fizzy drinks and soda which have high sugar content and are widely known to cause weight gain and in some cases, lead to obesity.
Coca-Cola has been grappling with falling sales from products that used to be its core revenue driver.
US drinks giant Coca-Cola has bought a 16.7% stake in Monster Beverage in a cash deal, as it looks for growth away from fizzy drinks.