The Serbian striker had been at the top of the club's shortlist after his loan spell helped fire them to the Premier League last season.
It is believed the fee for the 23-year-old is around £22million plus future incentives.
Mitrovic endeared himself to the Fulham faithful last season after scoring 12 goals in 18 Championship starts.
Speaking of his move, he told fulhamfctv: "I’m very glad and happy and proud to finally be here and officially become a Fulham player. I’m happy to the moon and back.
“I have love for the fans. They’re amazing fans and I have a really good connection with them.
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“This is a big club and last year we made history, we did big things, and I want to continue this. We want to keep making big things, and with all the fans behind us I think we can go far.”
He powerful striker becomes the club's fifth signing of the summer following the arrivals of Andre Schurrle, Jean Michael Serri, Fabri and Maxime Le Marchand.
Club owner Tony Khan added: "I’m delighted to announce that Aleksandar Mitrović is back where he belongs at Fulham Football Club! We have reached an agreement to bring Mitro home!
“He was a hero in our run to promotion, and from the moment he arrived at Motspur and began working with us, we’ve always wanted Mitro on a permanent; I told him that after the Final at Wembley, and I’m thrilled to make it official today. Come on Fulham!”
Fulham are also closing in on Swansea centre-back Alfie Mawson.
The talented 24-year-old was their standout player as the Welsh side failed to avoid relegation to the Championship.
He is set for a medical on Tuesday after Fulham pipped Burnley to his signature.
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