YouTube Music, which will offer both ad-supported and $9.99-per-month versions, will compete directly with services from Spotify Technology, Pandora Media, Apple and Amazon.com.
YouTube Music will launch on May 22, and include features such as personalized playlists based on a user's YouTube history. The service is expected to eventually replace Google Play Music, the Alphabet Inc unit's existing music streaming brand.
The news sent stocks of music streaming companies Spotify and Pandora lower by about 2 percent on Thursday morning.
"Google has an advantage given YouTube's more than a billion users and viewers. So, it has opportunities to convert some into YouTube Music listeners or premium subscribers," said Ali Mogharabi, analyst at Morningstar Research.
The growing adoption of paid music streaming has helped wean a generation of music listeners away from free or pirated music, and has led to services such as Spotify and Apple Music becoming the recording industry's single biggest revenue source.
Revenue from music streaming services overtook sales of CDs and digital downloads for the first time in 2017, according to the International Federation of the Phonographic Industry.
YouTube Music will launch in the United States, Australia, New Zealand, Mexico and South Korea on May 22. It will roll out to more countries in the following weeks.
Separately on Thursday, YouTube also said it would revamp YouTube Red, the paid version of YouTube that comes with original programming, to include YouTube Music at an additional price of $2.
YouTube Premium, which will replace YouTube Red, will cost $11.99.