Townsend, Benitez | Source: Getty Images
The 30-year-old joins on a free transfer from Crystal Palace, where Townsend spent the past five years.
He will be reunited with new Everton manager Rafael Benitez, with whom he worked at Newcastle United.
"Everton is a massive club," he told Evertontv. "I want to prove I'm good enough to be an important player here."
Townsend has 13 caps for his country, started his career in Tottenham Hotspur's academy, spending seven years at White Hart Lane before moving to Newcastle in January 2016.
He spent just half a season in the northeast of England before joining Palace after Newcastle were relegated to the Championship.
"My strengths are that I can cross a ball with my left or right foot, get balls into the box," said Townsend.
"I like to score a goal or two and I work hard off the ball - which is something I got better at with Rafa.
"My job now is to prove I'm good enough to be an important part of this football club and that's what I'm working hard in training and in games - and whenever I get the opportunity in pre-season - to do. That's what drives me."
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