The Bulgarian had been linked with a move to Serie A - with Fiorentina and Juventus reported to have been leading contenders for his signature - after falling down the pecking order at Old Trafford.
He told Fulham's official website: "I'm delighted to have signed for Fulham and I look forward to playing under Martin Jol once again. As soon as I was aware of Fulham's interest, my decision to join was an easy one to make.
"I'm impressed with the setup here, and the people have made me feel welcome. There is a close and personal feel around the club, and I can't wait to get started."
Jol said Berbatov was "a player I have always admired", adding: "He did well for me at Spurs and I'm sure that he will do well here at Fulham.
"He's a player of great quality and technical ability who will give me the attacking option I've been looking for. When he's not scoring goals, his ingenuity often leads to chances being created for his teammates.
"I'm delighted that we've been able to convince him to come to us as there was a lot of attention from other clubs."
Berbatov was brought to English football by Jol, who signed him from Bayer Leverkusen for Spurs in 2006. Two years later, he moved to Old Trafford for a reported £30 million. He will wear the number nine shirt at Craven Cottage.
On Thursday, Jol confirmed that Berbatov was undergoing a medical with Fulham as a deal edged closer to completion.
Although Berbatov was believed to be on £100,000-a-week at United - a figure way beyond what Fulham can afford to pay - the West London club were hoping the player would be willing to compromise on personal terms.
Jol said: "Of course you have to pay good players good money, but I think we have made steps over the last few years and there have been many clubs interested in Dimitar." He said he was hoping to include him in his squad for Saturday's trip to West Ham.
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