The 28-year-old, who made 260 appearance for Millwall, has signed a four-year contract with the Baggies.
"I'm absolutely delighted to get him through the door," Baggies boss Steve Bruce told the club's website
"He is somebody who I've admired for a long time and have tried to sign before. He's got pace, power, penetration in the final third and, above all, is a top pro."
Millwall released a statement about Wallace, which read in part: "He has been a superb servant to Millwall Football Club with his exemplary personality on and off the pitch and will forever hold a special place in the club's history."
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