The 34-year-old won the Premiership title with Northampton in 2014.
Former head coach Mike Ford revealed to BBC Radio Bristol in May that Fotuali'i would be added to Bath's ranks.
Meanwhile, England Saxons lock Charlie Ewels has signed an extended deal with the club, having so far made 20 Premiership appearances for Bath.
Ewels has captained England Under-20s in the World Rugby Under-20 Championship and is currently with the Saxons squad on a two-match tour in South Africa.
Fotuali'i had been with Saints since joining from Ospreys in 2013.
"I'm really excited to be joining Bath," Fotuali'i told the club website. "They have an exciting, attacking ethos, which I'm looking forward to being part of, and I really like the focus that is put on individual development of players."
Bath parted company with Ford on 16 May after finishing the top-flight season in ninth place and are yet to appoint a replacement.
Bath have confirmed the signing of Samoa scrum-half Kahn Fotuali'i from Northampton Saints ahead of the 2016-17 season.