Defoe had a clause in his contract allowing him to leave Sunderland on a free transfer following their relegation from the Premier League.
The England striker had been strongly linked with a return to his former club West Ham but Bournemouth have won the race to clinch his signature.
The 34-year-old held talks with Eddie Howe on Monday and has agreed to pledge his long-term future to the Cherries.
Defoe was top scorer for Sunderland last season with 15 goals and also forced his way back into the England squad.
With no transfer fee involved, Bournemouth were willing to give him a lucrative wage packet and despite original reports he would be earning over £100,000 a week, he is still set to earn over £3million a year.
A Bournemouth source said: “It’s a great deal for the club and he is worth every penny.”
Defoe is no stranger to playing on the south coast after he had a memorable loan spell back in 2000 when he scored 12 in 10 consecutive games and finished the season with 20 goals.
Bournemouth are set for a busy summer in the transfer market as they also look to finalise a deal to sign former Chelsea skipper John Terry.