It gave no financial terms for the deal, which it expected to close by the end of this year.
Nestle has been ditching underperformers and put North American waters and Yinlu under strategic review.
The deal covers all of Yinlu's operations, including its five factories in Fujian, Anhui, Hubei, Shandong and Sichuan. Yinlu brands had sales of 700 million Swiss francs ($768 million) in 2019.
The transaction lets Nestle focus on key categories in China: infant nutrition, confectionery, coffee, culinary, dairy and petcare, it said, adding it remained fully committed to the greater China region, its second-largest market with sales of nearly 7 billion Swiss francs in 2019.
As part of the transaction, Nestle will retain its ready-to-drink (RTD) Nescafe coffee business and distribute the products across most of the greater China region.
Yinlu will continue to manufacture the Nescafe RTD products for Nestle and distribute the products in several provinces. Yinlu will continue to manufacture and sell Nestea products under licence from Nestle.
($1 = 0.9114 Swiss francs)
(Reporting by Michael Shields; Editing by Riham Alkousaa and Stephen Coates)