The Scotland international scored 12 times for the West Midlands club last season, but they were still relegated from the Premier League.
The Black Cats host Reading on Saturday afternoon and Martin O'Neill is delighted to have added some firepower to his ranks.
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He told the club's official website: “It has been no secret that we needed to strengthen our attacking options and Steven has a proven track record of scoring goals.
“He is young and constantly improving and he will be a very welcome addition to the squad. I’m delighted that we’ve been able to bring him to Sunderland.”
Sunderland have been linked with Fletcher ever since he handed in a transfer request at the beginning of August, and the former Burnley forward joins Louis Saha on Wearside in a new-look front line.
Wolves signed Fletcher from Turf Moor for £7m in 2010 and will owe his former club 15 per cent of the profit they will make on the striker.