The Facebook-owned app introduced ads to users' timelines last year, but they will now also start appearing inside Stories - the collections of photos and videos users can put together and share with their followers.
Instagram says it will initially offer the new feature to 30 advertisers, but it is expected to roll out globally within the next few weeks.
The adverts will consist of full-screen photos or videos and will appear automatically when moving between different Stories from Instagram users' followers.
Stories are heavily inspired by a similar feature offered by Snapchat and have proven popular since launching in August 2016, with more than 160 million people using them every day.
Snapchat used to run adverts in its Stories feature but removed them towards the end of 2016.