Users of the social network might see a section in their newsfeed called "Suggested Videos." When a user clicks a video in this, a pop-up will appear with a scrolling stream of recommended videos, based on previous ones that you may have watched in your newsfeed. These videos auto-play as you scroll to them.
In between the videos there will be auto-play advertisements.
Facebook said it would split the revenue from the ads, with 55 percent going to the video creator whose content the ad was played around and 45 percent remaining with the social network.
"We're running a new suggested videos test, which helps people discover more videos similar to the ones they enjoy. Within suggested videos, we are running a monetisation test where we will show feed-style video ads and share revenue with a group of media companies and video creators," a Facebook spokesperson said in a statement.
Putting a structure in place to monetize videos gives content creators an incentive to produce items suited for Facebook. The move is a big challenge to YouTube, which has dominated the video ad market through its ability to create major stars with big followings on social media.
The Facebook ads will play intermittently, meaning that you might only see one advertisement for every three videos you watched. In that case, the 55 percent would be split with the three video creators around which the ad was played, depending on how long you watched their videos for, according to technology news provider Re/code.
Despite the complexity of the pay-out structure, the move is "gamechanging" for content partners, according to Richard Broughton, research director at Ampere Analysis.
"For Facebook, because content creators now have an incentive to put videos on the social network, that will create more content on the platform, more people viewing and potential new opportunities for advertisers," Broughton told CNBC.
"This longer term growth for Facebook as a video platform is significant."
Video views on Facebook are expected to exceed two trillion this year, or two-thirds of YouTube's projected total for the same period, according to Ampere Analysis, showing the emphasis the social media giant is placing on this type of content.
Facebook has been making big improvements in its video experience over the past few months. It started to show more content as well as auto-playing videos in the newsfeed, resulting in four billion daily views in April, up from one billion in September.
Facebook is working with a handful of media companies and video creators in the "Suggested Videos" trial, such as the NBA and "Funny or Die," according to Re/code.
It is only being tested for people using the service on an iPhone in the U.S.
YouTube has built up a number of major stars on its platform with dedicated followers. Fans will flock to their favorite YouTube stars' page to watch their latest clips. But Facebook does not have this of yet.
Broughton said that in the beginning, users are likely to seek different types of videos on Facebook that what is hosted on YouTube.
"It's likely to be more news-driven shares on Facebook. Youtube has a more channel feel and strong search engine."