The offer price of $19.75 per share represents a 28 percent premium to Obagi's Tuesday closing price.
Obagi's board has unanimously approved the deal, Valeant said in a statement on Wednesday.
The company said it expects the transaction to close in the first half of 2013 and immediately add to its cash earnings per share.
The deal is expected to save at least $40 million in annual costs within six months of closing.
Valeant, Canada's largest publicly traded drugmaker, has been building up its dermatology and aesthetics portfolio in the United States over the past one year.
It has acquired about a dozen smaller companies over the past year, including the $2.6 billion purchase of U.S.-based Medicis Pharmaceuticals Corp in December that added Botox competitor Dysport and other skin care drugs to its products.
Chief Executive J. Michael Pearson told Reuters in February that Valeant was in talks for more acquisitions and was also open to discuss a potential "merger of equals."
Obagi, which makes topical aesthetic products, had a revenue of about $120 million in 2012.
"Obagi is a leader in the physician dispensed market and enjoys a strong brand perception among physicians. The addition of their products will ... expand our market presence with dermatologists and plastic surgeons," Pearson said.
Obagi shares were trading up near the offer price at $19.71 in premarket trading.
(Reporting by Esha Dey, Bhaswati Mukhopadhyay and Vrinda Manocha in Bangalore; Editing by Roshni Menon and Joyjeet Das)