Once a sprawling conglomerate, Philips is concentrating on healthcare after spinning off its lighting and consumer electronics divisions in recent years.
"This transaction concludes our major divestments," Philips Chief Executive Frans van Houten said.
"Going forward, our focus is on extending our leadership in health technology."
Philips said last year it intended to sell the division, whose coffee machines, air purifiers and vacuum cleaners generated 2.2 billion euros in sales last year, as it was no longer part of its core business.
Philips shares were up 1.7% at 1105 GMT, leading Amsterdam's blue chip AEX index, as it said the deal would lead to net cash proceeds of 3 billion euros in the third quarter.
The company also expects to receive around 700 million euros in the coming years, as Hillhouse will license the Philips brand name for 15 years under the deal.
Van Houten said the proceeds would be used for a mix of dividends, share buybacks and possible acquisitions, but said no new takeovers were in sight.
"We are currently still running a share buyback programme. We have just done three acquisitions in the last five months, so in a way you could say we have already spent the money," he said.
"We will continue to look for opportunities in a very disciplined way."
Philips described the buyer, Hillhouse Capital, as an investment firm that will continue to innovate. The transaction will be closed in the third quarter pending regulatory approval, it added.
($1=0.8470 euros)
(Reporting by Toby Sterling and Bart Meijer; Editing by Susan Fenton, Clarence Fernandez and Barbara Lewis)
By Bart H. Meijer
