The minister, who is on a visit to the US to attract investment into the newly created state, discussed with Nadella various issues of collaboration.
Rao urged Nadella to expand the operations of the company in Telangana.
"Had a good meeting with @satyanadella at Microsoft HQ. Discussed several potential areas of collaboration and growth," the minister tweeted.
Nadella had met Telangana Chief Minister K. Chandrasekhar Rao during his visit to Hyderabad in September last year.
This was Hyderabad-born Nadella's first visit to Hyderabad after taking over as the CEO of IT behemoth.
The Microsoft India Development Centre (MSIDC) in Hyderabad is Microsoft's biggest research and development centre outside of its headquarters in the US.