The Black Cats confirmed last week that the 26-year-old Sweden international would be playing his football on Wearside next season, but his move would not officially go through until today following the expiry of his contract at St Andrew's.
Larsson joins Ahmed Elmohamady, Connor Wickham and Ji-Dong-won at the Stadium of Light with manager Steve Bruce having made significant early progress in his rebuilding plan.
Bruce signed the former Arsenal trainee for the Blues for £1million in January 2007 after a successful loan spell, and he went on to make 170 appearances.
However, he did not agree a new contract with last season's Carling Cup winners and, with a series of suitors on his trail, Bruce, who tried to sign him in January, has managed to get his man this time around.
The manager said: "Seb was a fantastic young player for me at Birmingham and he has matured into a very good midfielder.
"He has been courted by a number of top clubs over the summer - both in England and across Europe - so we are naturally delighted that he has chosen to come to Sunderland."
Larsson and his new team-mates are due to report for pre-season training next week with the club pursuing further targets as they attempt to build upon last season's top-10 finish in the Barclays Premier League.
The club also confirmed their fifth summer signing after goalkeeper Keiren Westwood signed a three-year deal.
The 26-year-old Republic of Ireland international agreed a Bosman free transfer to the Stadium of Light last week, but the move could not be finalised until his contract at Coventry expired at midnight.
Westwood will battle with Belgian youngster Simon Mignolet for a place in Bruce's starting line-up with £9million man Craig Gordon recovering from a knee injury.
Bruce said: "Keiren has proven to be an exceptional goalkeeper both in the Championship and at international level and he has certainly been one of the best in this country outside of the Premier League in recent seasons.
"We are obviously delighted that Keiren sees his future here at Sunderland, and we are looking forward to him joining what is a talented group of goalkeepers at the club."
Westwood began his career at Manchester City, but established himself as a first-team player at Carlisle, where he made more than 130 league appearances before winning a £500,000 move to Coventry in June 2008.
He has seven full international caps and excelled for Giovanni Trapattoni's men when deputising for the injured Shay Given last season.