Microsoft software will sell for just $3 (£1.50) in some parts of the world in an attempt to double the number of global PC users.
The OLPC project is also trying to bridge the digital divide
The firm wants to bring computing to a further one billion people by 2015.
Governments in developing countries can purchase the cut-price software, if they provide free PCs for schools.
Other companies and organisations are also trying to boost computer literacy in developing countries, notably the One Laptop per Child project.
The OLPC are in the final stages of developing a low cost, durable laptop, designed to work specifically in an educational context.
Millions of laptops running a Linux operating system will be start to be delivered to developing nations this summer.
The eventual aim is to sell the machine to developing countries for $100 but the current cost of the machine is about $150.
The first countries to sign up to buying the machine, which is officially dubbed XO, include Brazil, Argentina, Uruguay, Rwanda, Nigeria and Libya.
The Microsoft initiative was launched by Bill Gates in Beijing under the banner of its Unlimited Potential scheme, a program aimed at bridging the digital divide.
The scheme aims to bring the benefit of computing technology to the remaining five sixths of the world's population, who currently live without it.
Intel have developed the low-cost Classmate PC
"Bringing the benefits of technology to the next five billion people will require new products that meet the needs of underserved communities," said Microsoft chairman Bill Gates. One of the first products, that is hoped will reach the next billion people is the Microsoft's student Innovation Suite.
The package includes Windows XP Starter Edition, Microsoft Office Home and Student 2007, as well as other educational software.
The $3 package will start to be sold to governments in the second half of 2007.
"This is not a philanthropic effort, this is a business," Orlando Ayala of Microsoft told the Reuter's news agency.
In many developing countries, pirated versions of Microsoft software are sold very cheaply.
Governments will be required to provide free computers to schools, capable of running Windows, to be eligible for the discounted software.
The scheme is one of many launched by organisations and big business to address the digital divide.
Search giant Google allows anyone to download its Google Apps, which includes spreadsheet, word processing and email programs, for free. In countries such as Egypt, Kenya and Rwanda, Google has also provided engineers and technical support.
In addition, chip-maker Intel has developed the Classmate PC, while its rival AMD has launched a scheme called 50x15 that aims to put computer technology in the hands of half of the world's population by 2015.