The winning craft will have to land on the Moon, roam for a minimum of 500 metres and take a series of panoramic images and videos that will be streamed to Google's website.
The first team to accomplish the task will receive $20m, plus a bonus of $5m if they exceed the minimum requirements. There is also a $5m second place prize, totalling $30m in potential prize money.
If no successful entry emerges by 2012, the deadline will be extended until 2014 but the prize money will be lowered to $15m.
The first X-Prize was won in 2004 and offered $10m to the company which made the first private, sub-orbital space flight.
"When the original Ansari X-Prize was launched it was considered unimaginable that private individuals could commercially venture into space, and yet that was accomplished," said Google co-founder Sergey Brin.
"So now, we are embarking on this great adventure of having a non-governmental, commercial organisation return to the Moon and explore."
Alan Eustace, senior vice president of engineering at Google, wrote in his blog that Google sees the sponsorship as money well spent.
Eustace cited space exploration's remarkable history of producing technological breakthroughs, from ablative heat shields and asteroid mining to invisible braces and Tang, not to mention "simply being cool".
Google hopes that this X-Prize could lead to important developments in robotic space exploration, as well as a host of new space-age materials and precision landing control technology.
"It has been many decades since we explored the Moon from the lunar surface, and it could be another six to eight years before any government returns," said X Prize founder Peter H. Diamandis.
"Even then, it will be at a large expense and probably with little public involvement. The X-Prize Foundation could think of no better sponsor and partner than Google.
"We share a common vision for opening frontiers and a belief that a small dedicated group of individuals can accomplish amazing feats at very low cost.
"With the Ansari X-Prize, we were able to demonstrate that personal spaceflight is possible. Now, a new industry is emerging making it possible for anyone to fulfil their dream of spaceflight.
"With the Google Lunar X-Prize we hope to usher in an era of commercial exploration and development, in which small companies, groups of individuals and universities can build, launch and explore the Moon and beyond."
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