From 2015 there will be two independent companies: eBay, encompassing a portfolio of global trading platforms (such as eBay and Gumtree), and PayPal, for facilitating online payments.
Investor pressure is thought to be behind the move.
Whether or not to separate has been a moot discussion for some time among major eBay shareholders.
The winners of the argument say that a split would end the conflicts of interest that exist between the companies, allowing each to focus on its own strengths. Despite its prodigious growth - PayPal facilitates one in every six dollars spent online today, with total payments over the last 12 months up 26% to $203bn - PayPal faces competition from emerging providers, including Apple's recent announcement of a payment system for the iPhone.
Having tried and failed to build its own payments system, eBay bought dominant rival PayPal for $1.5bn in 2002, introducing the payment option to the UK eBay site in 2004. Some analysts believe the business could now be worth more than $30bn.