The 25-year-old completed his medical on Friday and will formally complete the move on Sunday.
Royals chairman Sir John Madejski: "I would like to welcome Danny to Reading and wish him every success here."
Guthrie suffered early in the campaign last season following a pre-season knee injury and took his time to get back into the squad.
Then the arrival of Cheick Tiote put him down the pecking order, and the former Liverpool winger made it known he would be leaving in the summer.
Danny Guthrie: "It feels brilliant to have signed, it is a great honour and I am very excited.
"As soon as I met the manager and Nick Hammond my mind was made up, it was a no-brainer.
"Reading Football Club is a fantastic family club, well run and I'm so excited to be part of something special for this club."
Director of football Nick Hammond: "Danny is a player we have admired for a long time and we have been aware of him since he first broke into the Premier League at Bolton.
"He has great experience at this level, most recently for a massive club in Newcastle playing in front of big crowds on a regular basis.
"He is a good age, but still has a lot more to come with the best years of his career ahead of him."
Manager Brian McDermott: "We're delighted Danny has signed for us.
"He brings good experience at a good age, he has real ability to pass the ball, he's got energy and he is what Reading is all about, a hungry player.
"We're looking to add players who we think will be good for us over a number of years, not just next season, adding to the players who have already done fantastically well for us."
Source: FOOTYMAD
