Uruguay international Ramirez joined Southampton for an undisclosed fee from Bologna in August 2012, widely reported to be a club-record £12 million.
But the 23-year-old has struggled for consistent form and fitness on England's south cost, with 22 of his 45 Premier League appearances coming as a substitute.
Hull boss Steve Bruce commented: "Gaston significantly improves our attacking options and I'm delighted to welcome him to the club.
"He is yet another quality addition as we look to build on what we achieved last season."
Ramirez's arrival at the KC Stadium comes amid a busy transfer deadline day for Hull.
West Ham midfielder Mohamed Diame joined for an undisclosed fee after City smashed their transfer record to bring in Ramirez's compatriot Abel Hernandez from Palermo for an estimated £10m.
Hernandez and Diame agreed three-year deals and Bruce could further bolster his creative options with a move for unsettled Newcastle United midfielder Hatem Ben Arfa before the deadline.
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