The 26-year-old has signed a four-year deal at The Hawthorns.
The Wales international played 156 league games for Hull, who were relegated from the Premier League in May.
Baggies boss Tony Pulis said: "James did very well for Hull City. I've had a good chat with him and he's the type of player I like."
Fellow Premier League side Leicester City were also interested in Chester, who started his career at Manchester United, making one appearance.
He joined Hull in 2011 following loan spells at Peterborough, Plymouth and Carlisle.
Hull manager Steve Bruce earlier told BBC Radio Humberside: "We've said all summer that it is inevitable that we are going to lose a few players because that is the fallout of relegation.
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"He has served the club fantastically well in the time he has been here and how can you deny him the opportunity to play in the Premier League?
"The money we get from him we will re-invest back into the squad."
Bruce added that he expects winger Robbie Brady, 23, to be the next departure from the KC Stadium.
The Republic of Ireland international has been heavily linked with a transfer to Norwich City.
"We said from day one that if the price is right then we are not going to stand in anybody's way," he said.
"James and Robbie had one year left on their contracts and they made it clear they wanted to play in the Premier League. We have to look after the club."
Find all the latest football transfers on our dedicated page.
West Bromwich Albion have signed Hull City defender James Chester for a fee of £8m.