Gray joined Bayer Leverkusen from Leicester City in the January transfer window on an 18-month contract and made 12 appearances for the Bay Arena outfit, scoring one goal.
The former England U-21 international has arrived at Goodison Park for £1.7m and becomes new Everton manager Rafael Benitez’s third summer signing after Andros Townsend and Asmir Begovic.
Gray has told Everton's official website: "I’m delighted to be back in the Premier League at such a big club and I’m excited to play with the team and get to work.
"Speaking to the manager and [director of football] Marcel Brands, I had a really good feel for the club and I feel this is a place where I can continue to develop.
"The manager, with his ambition and what he has won in the past, is important and we’ll look to push forward and compete with the top clubs. I think a club of this magnitude has all the potential to be right up there.
"Collectively with what Marcel and the manager have said to me, everything fits, including the club’s ambitions and goals. Everton are a very big club and the main objective is to be pushing and competing back up there in the table.
"I want to work hard on the training pitch and work my hardest for the club on the pitch."
Gray was part of the Leicester City side that won the Premier League title under Claudio Ranieri in the 2015/2016 season.
The former Birmingham City man will wear the number 11 jersey at his new club.
