Gray's time at the Toffees ended on a sour note after falling out with manager Sean Dyche.
The 27-year-old Jamaica international had not featured for Everton this season.
Gray is the latest player from Europe to join Steven Gerrard's side this summer.
The former England youth international joins the likes of Moussa Dembele, Jordan Henderson and Georginio Wijnaldum at his new club.
A short statement from the Toffees read: "Everton have sold Demarai Gray to Al-Ettifaq on a permanent transfer for an undisclosed fee.
"Gray moves on after the Blues opted to sell the 27-year-old forward to the Saudi Arabian club. It brings an end to his two-year spell on Merseyside, having signed from Bayer Leverkusen in 2021.
"Gray made 75 appearances and scored 12 goals for Everton. The Jamaica international started his career with hometown club Birmingham City before joining Leicester City in 2016."
Upon leaving Merseyside, Gray said: "I wish everyone at the club the very best and will be forever proud to have played for this great team.
"There has been a lot of speculation about my situation all summer. The truth is I gave my all to this club on and off the pitch through good and bad.
"I was ready to play as much football as possible this season but it felt like this was not going to happen."
Gray was part of the Leicester City side that won the Premier League title under Claudio Ranieri in the 2015/2016 season.
