The 28-year-old Wales international, who was also a target for West Bromwich Albion, became Steve Bruce's ninth summer signing when he followed Wes Brown and John O'Shea into the Wearside club in a busy 24 hours.
Vaughan was a key figure in the Seasiders' climb into the Premier League, but left within hours of sidekick Charlie Adam, who joined Liverpool on Thursday, after rejecting an extended stay at Bloomfield Road.
Bruce said: "David was excellent throughout last season, including both games against us, so it's only natural that he caught the attention of a number of top clubs.
"We are delighted that he sees his future at Sunderland. His experience, grit and energy in midfield will be valuable assets to us and we are now looking forward to him joining up with the squad for pre-season training."
Vaughan began his career as a trainee at Crewe and after a spell in Spain with Real Sociedad, joined Blackpool for £200,000 three years ago.
However, relegation from the top flight at the end of last season prompted him to look elsewhere and the Black Cats made their move amid interest from West Brom among others.
He joins fellow midfielders Ahmed Elmohamady, Craig Gardner and Sebastian Larsson among the newcomers in a department which this summer has lost Jordan Henderson to Liverpool, Bolo Zenden at the end of his contract and Sulley Muntari following a disappointing loan spell.
Bruce has also landed goalkeeper Keiren Westwood and O'Shea and Brown at the back and strikers Connor Wickham and Ji Dong-won.
The Black Cats finished 10th in last season's Premier League, but might have fared even better had it not been for a prolonged injury crisis.
Bruce is determined to build upon that and despite having invested heavily already, may not yet be finished.