Last month, reports emerged that Rangers had made an approach for the Canadian international, whose contract at Turf Moor expires at the end of the season.
Arfield has now penned a long-term deal with the Scottish giants and manager Steven Gerrard - who officially takes charge on June 1 - says that he is delighted to get the transfer over the line.
Gerrard told the club's official website: "I am delighted to have added Scott Arfield to the squad for next season. He is a talented and competitive midfielder who has competed at a high level in the English Premiership and internationally for Canada.
"Scott is the first one in and I look forward to working with him and the others who will be coming in to strengthen the squad."
Arfield ends a five-year spell with Burnley, during which he has scored 22 goals in 193 appearances in all competitions.