Icahn's investment, revealed in a filing with the Securities and Exchange Commission, comes about three weeks after acrimony between the two men spilled out on live television, with each phoning in to CNBC and insulting each other.
The filing, which was published late Thursday, sent shares of Herbalife soaring more than 20 percent before the opening bell Friday.
Icahn said in the regulatory filing that he plans to have discussions with Herbalife management on business and strategic alternatives to enhance shareholder value, including the possibility of going private.
That would be disastrous for investors who have shorted Herbalife, a tactic in which an investor "borrows" a share from a broker and sells it on the open market, anticipating that it will fall in value, so that share can be bought again later at a lower price.
Short sellers could be forced to liquidate their positions to limit their losses, and with the shares rocketing early on Friday, many certainly will be doing just that.
Icahn has said publicly that he neither likes nor respects Ackman and didn't like how he had approached his short position in Herbalife. He has previously refused to comment on whether he held a position in Herbalife, but many speculated would take a stake in the company out of his desire to strike at Ackman.
In an emailed response, a spokeswoman for Herbalife said, "We welcome all parties who see the same value in Herbalife that we do."
Herbalife shares have been extremely volatile over the past few months. Greenlight Capital's David Einhorn, another prominent Wall Street figure, raised concerns about the company's business in May. And shares dropped sharply following a lengthy PowerPoint presentation by Ackman in December, when he declared that Herbalife was a pyramid scheme.
The company has strongly disputed Ackman's statements, saying that he is attacking the company solely to strengthen his short position. Executives called a meeting with analysts and investors in January to detail how its business operates and who its customers are. Ackman replied that Herbalife "distorted, mischaracterized, and outright ignored large portions" of his presentation.
Shares of Herbalife Ltd. opened $5.95 higher this morning at, up 16 percent from Thursday's close, to $44.22, but fell back in early trading.