Although West Ham opted not to reveal the fee for the 21-year-old, the Premier League club confirmed the move breaks their transfer record.
"I am very happy to sign for such a historic English club and I hope to show my best here," said Diop, who was appointed Toulouse's captain at the age of 20.
"I am a very ambitious player and West Ham is a very ambitious club, as we’ve seen with the appointment of the new coach. I hope to help the team win lots of games and make the fans happy."
West Ham's new director of football Mario Husillos added: "Issa is a player with fantastic potential who has already shown great quality at such a young age.
"He has represented France at every youth level up to Under-21 and we believe that he is now ready to make the next step in his career by moving to the Premier League with West Ham."
West Ham United (@WestHamUtd) June 19, 2018
West Ham have already added Fulham defender Ryan Fredericks as their first signing under new manager Manuel Pellegrini, who replaced David Moyes at London Stadium.