The Toronto-based diamond miner will be renamed Dominion Diamond Corp. after the deal closes.
"At the time that we purchased the Harry Winston brand, resource investment opportunities for diamonds were rare and expensive following the euphoria of the Canadian diamond discoveries, and the involvement of the large international mining companies," said Robert Gannicott, Harry Winston's chief executive.
"Today there is a range of diamond resource opportunities while the value of heritage luxury brands has increased dramatically. This transaction represents a sound return on our original investment."
Gannicott said the company's mining business will be well-equipped "in an environment where cash has become a strategic resource while preserving and expanding our relationship with the downstream diamond business."
Swatch will pay Harry Winston $750 million and assume $250 million in debt owed by Harry Winston.
Harry Winston shares closed up 63 cents at $14.90 on the Toronto Stock Exchange.
The Harry Winston brand is named for a celebrity jeweller, mentioned in the enduring song "Diamonds Are a Girl's Best Friend" from the 1953 musical Gentlemen Prefer Blondes.
Swatch said Harry Winston will complement the prestige segment of the Swiss group, which is one of the world's biggest makers of watches.
"We are proud and happy to welcome Harry Winston to the Swatch Group family — diamonds are still a girl's best friend," said Swatch chairwoman Nayla Hayek.
RBC Capital Markets analyst Irene Nattel the key question is what will Harry Winston do with the cash from the deal.
"From a mining perspective the transaction is attractive in that it will provide more focus and potentially more capital to enter into the consolidation of the diamond mining sector," Nattel wrote in a note to clients.
BMO Capital Markets analyst Edward Sterck, who has a $16 target price on Harry Winston, called the deal a positive for the company.
"Harry Winston could look to return cash to shareholders, reduce the debt it has taken on to fund the Ekati acquisition, or look to consolidate further mining assets — most likely Rio Tinto's 60 per cent stake in Diavik or its entire diamond division," Sterck wrote in a note to clients.
"The acquisition of Rio's diamond division could represent a fascinating opportunity for Harry Winston at the right price, but taking on a number of mining projects for a company which has not historically operated mines could increase the risk profile of the stock pending personnel announcements."
Included in the deal are 535 employees around the world and a production company in Switzerland.
Swatch makes and sells watches under 19 different brands including Omega, Longines and Tissot as well as has a retail chain under the Tourbillon Boutiques banner.
The mining company had been called Aber Diamond Corp. until it acquired the Harry Winston retail business in two stages in 2004 and 2006.
As Harry Winston Diamond, the company had adopted an integrated strategy that included mining, polishing and retailing of the precious stones.
However, the company has recently moved to increase the mining portion of its business by acquiring BHP Billiton's diamonds business, including its stake in the Ekati diamond mine in the Northwest Territories for US$500 million in cash.
Under the deal, BHP Billiton's employees working at Ekati, in Yellowknife and in diamonds marketing in Antwerp, Belgium, will join Harry Winston.