The owner of Smirnoff is targeting a thirst for spirits among the Indian middle classes by taking a stake in Asian drinks giant United Spirits Limited (USL).
Diageo's 112 billion Indian rupee (£1.3 billion) deal will give it a 53.4% slice of India's largest spirits company as part of a strategy to move into emerging markets amid falling UK sales.
Paul Walsh, Diageo chief executive, said his company was well positioned to target the opportunities presented by the growth of middle class spirit consumers as incomes rise in India.
He said: "The combination of USL's strong business with the capabilities which Diageo brings as the world's leading premium drinks company will ensure USL continues to lead the industry in India."
In February Diageo announced a £1.3 billion deal to snap up Turkey's biggest spirits producer Mey Icki and in August Diageo reported an 11% profits hike in the year to June 30, with spirits fuelling more than 80% of its growth. Johnnie Walker whisky enjoyed a 15% sales surge, driven by strong demand in countries such as South Africa, Brazil and Asia Pacific.
Smirnoff enjoyed double-digit growth in Africa and Latin America, helped by a marketing campaign featuring Madonna.
USL chairman Vijay Mallya, who is also the owner of Indian Kingfisher Airlines, will continue in the role. It is expected the deal will be completed early next year.