The 33-year-old, who made 37 appearances on loan at Goodison Park last season, has joined on a permanent deal after his contract with the Premier League champion expired.
The veteran midfielder spent last season on loan with the Toffees where he enjoyed a productive campaign, helping fuel the club's ultimately unsuccessful bid for Champions League football.
And Roberto Martinez has opted to sign the 33-year-old permanently after his contract with City came to an end, as the Spaniard aims to bolster his squad to make a renewed charge for the top four this season.
"I've learned so much from the boss, it's a great set of players and the fans are fantastic - everything about Everton feels right," said Barry upon completing the transfer.
Martinez added: "We all know the type of player Gareth is and the type of person he is. He will fit perfectly well into what we are at Everton."
Barry made 175 appearances in all competitions over five years with City, winning the FA Cup and Premier League during his time at Etihad Stadium.
The former Aston Villa man has also been capped 53 times for England, though he was overlooked by Roy Hodgson for England's ill-fated World Cup campaign in Brazil.