As per an earlier filing with the US Securities and Exchange Commission (SEC), "Musk will be required to pay Twitter a termination fee of $1 billion", if he cancels the deal.
Musk was expected to provide equity financing of approximately $21 billion on his own.
The Tesla CEO had said that Twitter is violating the terms of his $54.20-per-share offer by refusing to give him more information about how much of the platform's traffic is driven by fake accounts.
He then threatened to blow up the deal over the issue.
With him terminating the deal, Tesla shares went up more than 14 per cent in after-hours trading on Friday, as investors reacted positively to Musk's move.
Tesla shares rose 14.51 per cent to close at $752.29.
Musk in May committed to provide an additional $6.25 billion in equity financing for his $44 billion Twitter takeover, bringing his total equity commitment to $33.5 billion and bringing relief for Tesla investors.
Tesla stock had nosedived more than 30 per cent after Musk announced to fund his Twitter buyout by borrowing against his Tesla ownership stake.
Twitter on Saturday announced to sue Musk over terminating the deal.