The vast sum of money will be spread across Virgin Galactic, The Spaceship Company and Virgin Orbit.
There is a further option of a $480m (£364m) investment.
Sir Richard also said that there is a chance in the future the Virgin Group will create a “space-centric” entertainment industry in the wealthy Middle Eastern nation.
In a blog on the Virgin website, Sir Richard said: “This investment is a sign of confidence from the international investment community that our vision, our approach and our technology are the right path to commercialising space access.
“We are now just months away from Virgin Galactic sending people into space and Virgin Orbit placing satellites around the Earth.
“This investment will enable us to develop the next generation of human spaceflight, more economic satellite launches and accelerate our programme for transcontinental point-to-point space travel.”
Saudi Arabia’s crown prince, Mohammed bin Salman, said: “This partnership with Virgin Group reflects the great strides the kingdom is making towards our vision for a diversified, knowledge-based economy.
“The future of Saudi Arabia is one of innovation, as showcased at this week’s Future Investment Initiative, and it’s through partnerships with organisations like Virgin Group that we will make active contributions to those sectors and technologies that are driving progress on a global scale.”
The investment still requires US regulatory approval and will see the Public Investment Fund of Saudi Arabia take a hefty stake of the company in return – although Sir Richard will remain majority shareholder.
Earlier this month, Sir Richard said that he anticipates a voyage into space in early 2018 courtesy of his Virgin Galactic.
Following his maiden voyage into space, Sir Richard says that civilians will then be able to buy tickets into the cosmos later in 2018.
Speaking at the Nordic Business Forum in Helsinki, Finland, the billionaire said: “We are hopefully about three months before we are in space, maybe six months before I’m in space.”