Qatar's investment will total some €7 billion and the country will become the third biggest shareholder in Volkswagen behind the Porsche and Piech families and the German state of Lower Saxony.
The agreement is part of a broader deal hammered out this month to merge Volkswagen with luxury sports-car maker Porsche, which incurred heavy debts in a recent failed bid to take over its far bigger rival Volkswagen.
Volkswagen shares were down 1.54 percent at €136.82 on the Frankfurt stock market on Friday afternoon. The company's shares have fallen by 40 percent since August 13 when the Volkswagen-Porsche merger deal was announced.
Christian Wulff, state premier of Lower Saxony, said he was optimistic that the fusion of VW and Porsche would not cost any jobs in his state. "The deal is only worth it if it makes one and one equal three," he said, hopeful that the merger would create more jobs.
Wulff also assuaged fears that the state of Baden-Württemberg would lose the Porsche headquarters, stressing that it was important that Porsche maintained its autonomy despite the merger.
"A Volksporsche would be a disaster," Wulff said, hoping to quash rumours that VW were planning a budget Porsche model.