Facebook, which recently passed the 400 million global users mark, said advertisers around the world would soon be able to use PayPal to pay for Facebook ads, which would make it easier particularly for small international companies to run campaigns.
PayPal will also become an option for Facebook Credits, the trial system allowing users to buy virtual goods, which is currently being tested in a small number of games and applications.
Osama Bedier, PayPal's vice-president of platform and emerging technology, said: "We've always been an important part of the developer ecosystem on Facebook, and we're excited to expand our relationship directly with Facebook to help grow advertisers and developers' business."
Earlier this month and predicted it would bring in revenues of between $125m (£81.2m) and $250m this year.
PayPal, which was bought by eBay in 2002 for close to $1.5bn, kicked off a pitch for its advertising account this week.