The US fashion company also said it will rename itself Capri Holdings upon the closing of the deal.
The enlarged Capri will comprise three global fashion brands: Michael Kors, Versace, and Jimmy Choo.
Michael Kors chief executive and chairman John D Idol said that the company was committed to investing in Versace’s growth, with a goal to grow revenues to over 2 billion US dollars (£1.5 billion).
“We believe that the strength of the Michael Kors and Jimmy Choo brands, and the acquisition of Versace, position us to deliver multiple years of revenue and earnings growth,” he said.
Michael Kors acquired shoe brand Jimmy Choo last year in a deal worth £896 million.
The move has already had a positive effect on the group’s earnings.
Donatella Versace, the brand’s artistic director and sister of founder Gianni Versace, will continue to lead the creative side of the business.
Versace boss Jonathan Akeroyd will also remain in place along with the rest of the brand’s senior management.
Michael Kors also outlined plans to increase the number of Versace retail stores worldwide from 200 to 300 and push the share of revenues raised from accessories and footwear from 35% to 60%.
The sale of Versace marks a turning point in the brand’s history. Founded in 1978, it has been majority-owned by members of the Versace family since its inception.
At the time of founder Gianni Versace’s death in 1997, the company had been making plans for a listing on the New York Stock Exchange, but it has remained private ever since.
Rumours of an IPO or sale resurfaced in the years following the company’s sale of a 20% stake to private equity giant Blackstone in 2014.
In 2016, former Alexander McQueen boss Mr Akeroyd was named chief executive of Versace to oversee “the next phase of Versace’s development”.
The deal is expected to close in the fourth fiscal quarter, subject to regulatory approvals.
U.S. private equity firm Blackstone, which bought 20 percent of Versace back in 2014, will fully exit its investment.