The holding midfielder has opted against a move to Arsenal and will continue his career at the 2008-09 Bundesliga champions
The 26-year-old has signed a five-year deal with the 2008-09 Bundesliga champions and will be officially presented later on Friday.
Gustavo was keen to leave Bayern after he was deemed surplus to requirements by head coach Pep Guardiola following the arrival of Thiago Alcantara from Barcelona earlier this transfer window.
He had also caught the attention of Arsenal and the Premier League giants had a €20 million offer accepted for Gustavo, however, the midfielder has decided to stay in the Bundesliga.
"We're very pleased to have convinced Luiz with our plans for VfL and managed to keep him in the Bundesliga," sporting director Klaus Allofs said.
Gustavo, meanwhile, added that the club's ambitious project and talks with Brazil boss Luis Felipe Gustavo were key to his decision to join the club.
"Wolfsburg wanted to sign me from the start, which is one of the reasons why I am here. They have a very good project at Wolfsburg, which is why I made the decision to start a new life here.
"[Scolari] spoke his mind and that helped me find a decision. There were many other factors, too. The situation was not easy but I was in a luxury position.
"Wolfsburg are a top club. I like Germany. The security the country gives me. I have considered everything. I knew about everything. My heart decided on Wolfsburg."
Gustavo had joined Bayern from Hoffenheim in January 2011, making over 60 Bundesliga appearances for the Allianz Arena side, where he also won the treble in 2012-13.
The Brazilian midfielder joins compatriots Naldo, Diego and Felipe Lopes at Wolfsburg.