The investment follows "several months of negotiations", a company statement to the Saudi stock exchange said.
The prince, who is one of the world's richest men, owns stakes in many well-known companies, including News Corporation.
He also has investments in a number of media groups in the Arab world.
"Our investment in Twitter reaffirms our ability in identifying suitable opportunities to invest in promising, high-growth businesses with a global impact," Prince Alwaleed said.

The company said it had seen rising sales of Mercedes-Benz cars and also Daimler trucks.
Daimler predicted that its full-year sales would be "significantly more than 100bn euros".
However, sales of Mercedes in China slowed, with sales up 8% compared with growth of 82% in the previous quarter.
"Demand for cars in the major emerging markets of China, India, Brazil and Russia will probably continue to grow.
"But rates of growth in China and India are likely to be distinctly lower than last year," said Daimler chief executive Dieter Zetsche in a statement.
Despite the cooling China market, Mr Zetsche is confident Daimler group sales will grow.
He said: "We are fully on schedule to turn 2011 into one of the most successful years in our long corporate history.
"Daimler developed very dynamically in the second quarter in terms of unit sales, revenue and earnings.
"We are not at our limit. We can do more."
Daimler sold 527,600 cars and commercial vehicles in the second quarter, an increase of 6% on the prior year.

The Hangzhou Internet Court opened on Friday and heard its first case - a copyright infringement dispute between an online writer and a web company.
Legal agents in Hangzhou and Beijing accessed the court via their computers and the trial lasted 20 minutes.
The court's focus will be civil cases, including online shopping disputes.
Judges were sworn in and the first case was presented on a large screen in the courtroom.
Defendants and plaintiffs appear before the judge not in person, but via video-chat.
"The internet court breaks geographic boundaries and greatly saves time in traditional hearings," said Wang Jiangqiao, the court's vice-president, via state media.
In 2016, China began streaming some trials in more traditional courtrooms online in an apparent effort to boost the transparency of the legal system.
Some questioned the move, however.
"I don't think it's appropriate to broadcast trials online because many people involved in these cases probably don't want the public to share their personal information," human rights lawyer Liang Xiaojun told the BBC at the time.
In some other countries, online portals to allow people to resolve legal disputes in cyber-space already exist.
Canada's Civil Resolution Tribunal starting accepting claims for $5,000 (Â£3,000) or less in British Columbia in June.
Saudi billionaire Prince Alwaleed bin Talal's Kingdom Holding Company has announced a $300m (Â£194m) investment in social media site Twitter.
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Luxury car maker Daimler has reported record quarterly profits of 1.7bn euros ($2.5bn; Â£1.5bn) in the three months to 30 June.
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China has launched a digital "cyber-court" to help deal with a rise in the number of internet-related claims, according to state media.