Darby, 23, who was released by Liverpool earlier this summer, has passed his medical at Valley Parade and has signed a two-year deal with the Bantams.
"Bradford is obviously a big club and the ambition of the manager really sold the place to me," Darby told the club's official website.
"Once I'd spoken to him, that really made my mind up to join here. This is the first club I've signed for permanently away from Liverpool so it really feels like a new chapter in my career for me."
City boss Phil Parkinson added: "Stephen is a good young defender with plenty of the right attributes to succeed with us. He's at the right age where he can still grow and improve with us, but still has plenty of league experience under his belt as well."
Darby, who played in the Liverpool FA Youth Cup winning teams of 2006 and 2007 and made three first-team appearances, spent last season on loan at Rochdale where he played 40 games in League One.