Founded in 2011, Dublin-based StoryToys is a developer of apps for children aged 2-7 years which works with leading brands including Disney, Pixar, Hasbro, and Nickelodeon.
Wakefield-based Team17, which floated on the stock market in 2018, is funding the deal from its own cash reserves.
It claims the deal will help cement its position in a fast-growing new market and broaden its reach to a new age group.
The global market for educational apps is forecast to grow by $46 billion between 2020 and 2024, at an annual growth rate of 26% according to Technavio.
Team17, whose top video games titles include Worms and Alien Breed, employs 250 people mainly in Leeds, Nottingham and Manchester.
Emmet O'Neill, chief executive of StoryToys, said: "Our goal is to be the number one provider of edutainment content for young children. Collaborating with Team17 will make that a faster and more exciting journey.”
StoryToys apps have been downloaded over 100 million times across 120 countries
Shares in AIM-listed Team17 rose 25.38p to 755.38p.