The Israeli international, who made 134 appearances and scored 29 goals for Liverpool, is a replacement for England's Joe Cole who left the league and cup double winners last month after failing to agree a new contract.
The fee was undisclosed but media reports said Benayoun cost Chelsea around six million pounds.
"I am very excited to come to a club like Chelsea, it is a big club and I think it is a dream for every player. Hopefully we will be successful," he told the team's website.
The 30-year-old Benayoun spent three seasons at Liverpool after moving to England in 2005 when he joined West Ham United from Spanish club Racing Santander.
Chelsea manager Carlo Ancelotti said: "Yossi has a lot of quality in midfield and can play in lots of positions. I like his behaviour on the pitch and he will do a great job for us next season."
A Liverpool spokesman said: "Yossi's departure was agreed between the player and (former manager) Rafael Benitez a number of weeks ago."
Benitez, now in charge of Inter Milan, was succeeded at Anfield by Roy Hodgson earlier this week.
