Facebook has acquired location-based startup Gowalla, according to a report this evening by Laurie Segall on CNN Money. The terms of the deal haven’t been reported, and Gowalla declined to comment. Facebook says it doesn’t comment on rumor and speculation.According to CNN’s report, the Gowalla team will be working on Facebook Timeline, with most of the team moving to Facebook’s Palo Alto headquarters and some remaining in Gowalla’s hometown of Austin, where Facebook has an office as well.

Gowalla, which has raised $10.4 million to date, first launched at SXSW 2009 going head-to-head against Foursquare, with a stronger emphasis on virtual goods (and nicer icons) than their competitor. But Foursquare overtook Gowalla in popularity by a large margin, prompting the startup to reinvent itself earlier this year.

The new product moves away from displaying a time-based feed of your friends ? recent check-ins, and focuses instead on creating Stories around the places you and your friends have visited, clustering together photos that show off your adventures (there is also a Guides section that lays out where you should visit in a given city).

In other words, it’s not too dissimilar to Facebook’s Timeline feature, which is also designed to group clusters of activity into more cohesive stories, as opposed to just a reverse-chronological feed. And it would make perfect sense for Facebook to start featuring location checkins and photos tagged with GPS coordinates into Timeline stories.According to CNN, the fate of Gowalla’s existing app is as of yet undecided.