The partnership came together after a Sirius offer to buy the full company was rejected by Pandora, sources told CNBC. The chairman role for Pandora is likely to be filled by Sirius CEO Jim Meyer or Liberty Media CEO Greg Maffei after the investment agreement closes, the sources said.
"Pandora's large user base and its ability to provide listeners with a personalized music experience are tremendous assets," SiriusXM CEO Meyer said in a statement Friday.
"With its strong technology and new product offerings, we believe there are exciting opportunities for Pandora to accelerate its growth and increase value for Pandora and SiriusXM stockholders."
The capital now being provided through the SiriusXM investment will allow Pandora to make "targeted investments" and build on its position in the streaming radio business, the two explained on Friday.
Shares of Pandora were nearly 6 percent higher to about $8.90 on Friday morning, while those of SiriusXM dipped into negative territory following the announcement. Liberty Media, the majority owner of SiriusXM, were little-changed.
As part of the investment, three people selected by SiriusXM will be named to the Pandora board and one of those individuals will serve as chairman, according to the press release.
This new investment serves in lieu of an investment from KKR, a firm known for private equity deals. Pandora and KKR had reached an agreement on a $150 million investment in May, but announced on Thursday they decided to briefly push back the close of the deal.
Pandora's latest deal with SiriusXM may be terminated by either party if closing has not occurred by February 1, 2018, the companies said.
On Thursday, Pandora said it was exploring interest that had been expressed by an unnamed strategic investor in making a "substantial minority investment."
Sources told CNBC last month that SiriusXM was in talks to acquire Pandora but had not reached an agreement on value, continuing on-and-off talks that had taken place since December between the two digital radio companies.
Though Pandora is still one of the most popular apps in the App Store, it faces increasingly fierce competition from Amazon, Apple, Spotify and Google. Pandora's active listeners were 76.7 million at the end of the first quarter of 2017, down from 79.4 million a year ago.
—Reporting by CNBC's David Faber. Writing by Anita Balakrishnan and Lauren Thomas.
Watch: Previous discussions between Pandora & SiriusXM