The move parallels a similar investment by Yahoo in another Melbourne dot-com success story, employment engine Seek Communications, earlier this year.
Carsales' other equity partners include the owners of Reynolds and Reynolds, which incubated the business, and 200 of the dealers in the Carsales network who took up an earlier equity offer.
The deal will see Carsales become the principal supplier of car listings for Yahoo Australia & NZ. One of the early boons for Carsales will be a major marketing campaign across Yahoo Australia & NZ and the Yahoo global network.
Yahoo reaches about 56 per cent of Australian web users every month, according to Media Metrix figures.
The marketing support is significant for Carsales, which competes with services run by major media companies such as Fairfax's drive.com.au.
In the past, emerging dot-coms have complained about the reluctance of Fairfax and other media outlets to carry their advertising in relevant areas of their publications, for instance, automotive classifieds in Carsales' case.
This was not an issue Carsales managing director Sak Ryopponen wanted to talk about. Instead, he focused on the advantages his company provided over other services.
"Apart from the fact that we have the most comprehensive listings of cars in Australia we also provide much more information for consumers than the classified approach of other players."
For dealers, Ryopponen said the company was also careful to separate dealer used and new car listings from private seller listings, something other services didn't offer.
Finally, he claimed Carsales was able to offer the most up-to-date listings of any service because the majority of the 900 dealers around the country pumping listings into the service updated their information in real time.
"For other dealers not directly integrated, the worst-case scenario is a 24 hour update," Ryopponen said.
Carsales makes its money by charging subscription fees to dealers for used car listings, generates further revenue from providing sales leads for new cars, and also charges a flat fee to people wanting to offer a private listing.
Yahoo Australia managing director Tony Faure said the deal closely mirrors the company's investment in market-leading job board Seek Communications.
"What we are looking for in a partner is their ability to deliver, and their market leadership, and Carsales rates on both these points."
Faure said the Carsales model, which he described as internet-assisted commerce, was emerging as a major phenomenon in markets such as the US.