Microsoft Corp. is pledging $605 million to help bolster Barnes & Noble Inc.'s Nook digital-book business, as the software giant wages another bet on an industry where it has lagged behind rivals.

The deal catapults Microsoft into a high-stakes battleground whose combatants include Amazon.com Inc., Apple Inc. and Google Inc., and also gives Barnes & Noble a lifeline to continue investing in its fast-growing digital-book business. As part of its investment, Microsoft is taking a 17.6% stake in a new subsidiary that will include...