Under the terms of the deal, the telecommunications company, based in Colorado, will pay $40.86 a share, which is a 12% premium above TW Telecom's closing price on Friday.
Level 3, which provides Ethernet, voice, data and other communications services to businesses, government and carrier customers, will also acquire about $1.6bn in debt.
The combined companies said together they are valued at around $25bn.
Level 3's CEO Jeff Storey said the deal will increase the company's market share by combining its global assets with TW Telecom's local operations in North America.
"TW Telecom's business model is directly aligned with Level 3's initiatives for growth, which include building managed solutions to meet customer needs through an advanced IP/optical network," Storey added in a statement.
Both companies expect the deal to save $240m a year in operating costs and investment expenses.
It comes as companies seek to gain a bigger scale in the telecom industry. Spring is reportedly planning to acquire rival carrier T-Mobile, Comcast recently said it would buy Time Warner Cable, while AT&T has proposed to take over DirecTV.