Kewell's 15-year career saw him playing for English clubs Leeds and Liverpool before he ended up at Galatasaray in Turkey.
But the 32-year-old has never played in Australia's top-flight domestic competition, having left his home town Sydney as a teenager for England.
The Victory have been involved in negotiations with Kewell and his agent Bernie Mandic since June over a complex revenue-sharing deal.
As well as his base salary, Kewell will receive a percentage of any increases in revenue his performances generate through attendances and marketing, according to reports.
A number of stumbling blocks, including a side deal with Football Federation Australia which would have seen him receive a wider spread of gate-takings, had threatened the deal.
"Harry is an Australian sporting icon and will bring not only incredible talent to Melbourne Victory but will attract more fans to football and boost greater interest and participation in the sport in Australia," Melbourne Victory chairman Anthony Di Pietro said.
"Our discussions with Harry have been progressing for some time and we are delighted to have completed what is the most significant signing in Australian football and A-League history."
Kewell is expected to begin pre-season training with Victory early next month.
"I am proud to be Australian and want to give something back to the game there," he said.
"It has always been my ambition to play in my home country and I am very pleased to have that opportunity by playing for Melbourne Victory."
FFA Chief executive Ben Buckley said it was a "red-letter day for the A-League and Australian football".
"Harry is rightly acclaimed as Australia’s most gifted footballer with a celebrated record of achievement. His homecoming will be hugely popular," he said.
Kewell has played in four World Cup campaigns and has 54 international caps, scoring 16 goals.