The centre-back will be registered as a Reds player when his current contract at the Etihad Stadium expires in the coming weeks and he will officially join the club on July 1.
Manager Brendan Rodgers has turned to the 32-year-old in order to add some experience to his back four following the retirement of veteran Jamie Carragher.
The Reds boss is keen to get his business done as early as possible to avoid the sort of problems which arose last summer.
Then he loaned striker Andy Carroll to West Ham the day before the August deadline in the belief he would be signing Clint Dempsey.
But the move collapsed after owners Fenway Sports Group baulked at Fulham's asking price and the United States international moved to Tottenham instead.
With Toure approaching free agent status it was a relatively straightforward deal to complete and further additions in defence are expected.
The future of centre-back Martin Skrtel remains in doubt after the Slovakia international lost his place to Carragher in the second half of the season.
Comments from the player in his homeland over the weekend appeared to suggest a move was a possibility and with Sebastian Coates also likely to be moved on, Rodgers' defence may need some rebuilding.
Toure arrived in England in 2002 when he was signed by Arsenal from homeland club ASEC Mimosas and actually made his debut against Liverpool in the Community Shield.
He had spells as a full-back and a midfielder at Highbury but had established himself as a centre-back by the time he Arsenal enjoyed their 'Invincibles' season in 2003/04 when they went the entire Premier League season unbeaten.
After playing over 200 games with Arsenal, winning two FA Cups to go with his league title, he joined Manchester City in 2009 for £16 million.
During his four-year spell with City he won another FA Cup and a second Premier League title.
He is the older brother of Yaya Toure who he played with at City and also for the Ivorian national team.
- Sports & Recreation
- Brendan Rodgers
- Jamie Carragher
- Andy Carroll
- Yaya Toure