This means the lowest paid of its 8,000 workforce will be paid an hourly rate of £8.80 in London and £7.70 in other parts of the UK.
Nestlé UK and Ireland group HR director Matt Stripe told HR magazine the organisation plans to "create a positive impact for the communities we work in" and the decision "makes good business sense".
"In this new digital age, how an organisation really behaves will only become more and more transparent," he said.
"Those businesses who don’t see this will struggle to attract and retain the best people, and will find it hard to retain customers within the communities they operate in."
Stripe said the move would not have been possible "without the support and partnership of our unions Unite, GMB and USDAW".
Unite general secretary Len McCluskey said the deal shows a "willingness to start to tackle poverty pay in a traditionally low-paying sector", while GMB general secretary Paul Kenny added it is a step in the right direction for manufacturing.
"This shows once and for all that if one leading manufacturer can pay a living wage to all employees, including young workers and those contracted out, then many more are able to do so," he said.
Archbishop of York John Sentamu, a campaigner against low pay in the UK, called this a "positive step".
"The emerging recovery means that thousands more businesses are now able to pay a living wage to all of their staff," he said. "Those that can afford to do this should be encouraged to without delay."
