The 23-year-old failed to make his mark at the Etihad Stadium in two injury-plagued seasons, and will now hope for a fresh start on Wearside.
No fee was announced by either club for a player capped three times by England, but reports put the figure around the £10m mark.
The club said on their oifficial website: "Rodwell rose through the ranks at Everton, making his debut at the age of 16 in a European tie against AZ Alkmaar in December 2007.
"His league bow – as a substitute against Sunderland at the Stadium of Light – came three months later before the Southport-born midfielder went on to become a regular for the Toffees.
"Rodwell, who has been capped on three occasions at senior level by England, made 109 appearances for Everton before joining Manchester City in summer 2012.
"He spent two seasons at the Etihad Stadium, during which time he represented City in the UEFA Champions League as well as the Barclays Premier League and domestic cup competitions."
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