Livestand, which will roll out in the first half of this year, will initially only feature content from Yahoo's properties, including news, sports, finance, and photo-sharing site Flickr.
The service, which will initially be available on Apple's iPad and Android tablets, will compete with newsreader app Pulse, and the Flipboard social magazine app.
The digital giant plans to extend iLivestand to other publishers in due course, but did not disclose details of how the revenue would be shared.
Yahoo said the new product will allow advertisers to reach mass audiences with highly targeted ads. The scale of the digital canvas allows digital ads to be served magazine-style, with interactive elements.
The company has not confirmed any advertisers so far.
Blake Irving, executive vice-president and chief product officer at Yahoo, said: "Adoption of tablets and mobile phones is exploding, and digital media is not keeping up."
"Consumers cannot find the publications they buy off the newsstand, and publishers and advertisers cannot reach the audiences they want to serve. As the premier digital media company, we are in a position to meet all of these needs."
Last month, Yahoo reported it had nearly doubled its profits for the fourth quarter of 2010 to $227.6m (£143.4m). Its revenue declined 4% to $1.2bn for the same quarter.