Suarez was a free agent after leaving boyhood club Nacional for a second time at the end of October.
Suarez rejoined Nacional in the summer on a free transfer from Atletico Madrid, signing a short-term contract lasting until the start of the FIFA World Cup in Qatar.
Suarez scored eight goals in 16 games to help Nacional win the Uruguay league title before departing.
He had been tipped with a move to the Major League Soccer but will instead spend the next two years in Brazil.
"One of the biggest in Uruguay's history, Luis Suarez is coming to continue his victorious trajectory," Gremio said on social media.
"A top goal scorer, a multiple champion, and a fighter. Welcome, Luisito."
"I wanted to thank you for all the love I have received," Suárez said in a video posted on social media. "We will meet shortly."
One of the best strikers of his generation, Suarez won four La Liga titles with Barcelona and the UEFA Champions League in 2015.
The 35-year-old won another La Liga title in two years with Atletico Madrid.
Suarez has also previously played for Liverpool, Ajax Amsterdam and Groningen.
He is Uruguay's all-time top scorer with 68 goals in 137 appearances, helping his country win the Copa America in 2011.
