The 22-year-old, who is tipped to take the number 10 shirt at Welford Road after opting to leave Newcastle but can also play at inside centre, will link up with his Tigers team-mates ahead of the new season after returning from England's tour of New Zealand.
"Leicester is a world-class club and the ambition of the club is very exciting for me," said Flood.
"I am sad to leave home and to leave Newcastle where I have very fond memories, but at this stage of my rugby career a new challenge is very important.
"This is an exciting challenge and it is one that I could not turn down. I am looking forward to getting stuck in at Leicester in pre-season training."
Flood has not been selected in the matchday 22 for England's opening Test against the All Blacks at Eden Park on Saturday.
He has 17 caps to his name since making his international debut in November 2006 and was called up as an injury replacement for last autumn's World Cup - eventually making appearances in all the knockout rounds, including the final defeat to South Africa.
Leicester chairman Peter Tom said: "Toby Flood is an ambitious and talented young player with good experience at Premiership and international level.
"We are sure he will be a valuable addition to an already competitive squad and we are looking forward to his arrival in preparation for the new season."
It is the club's second major announcement in five days after they sacked coach Marcelo Loffreda on Friday following an indifferent first season in charge.
Flood follows back-row Ben Woods as the second player to move from Kingston Park to the east midlands club this summer.