The former Birmingham City winger joins the Black Cats on a Bosman.
Sweden international Larsson admitted manager Steve Bruce's presence on Wearside had been a major factor in his arrival.
He said: "I have worked with the manager before and that obviously made the decision easier, but mainly it feels like it is a huge club and it feels like a great challenge for me.
"I want to take the next step in my career and I really feel I can do that coming to Sunderland."
Bruce was delighted to have finally captured a man who has been in his sights for some time.
He said: "Seb was a fantastic young player for me at Birmingham and he has matured into a very good midfielder.
"He has been courted by a number of top clubs over the summer - both in England and across Europe - so we are naturally delighted that he has chosen to come to Sunderland."