Flood, 28, had long been linked with a move from current club Leicester to the Top 14 side, with rumours of his departure seemingly ending his international career earlier this year.
Flood was omitted from the England Elite Player Squad (EPS) ahead of the Six Nations championship, with the Rugby Football Union (RFU) implementing a policy of not picking overseas-based players apart from in "exceptional circumstances".
"Toulouse symbolise French rugby," Flood said on the French club's website.
"There is history at the core of the club that is respected in the world of international rugby.
"I find many similarities between the history here and that at Leicester. It is among the reasons that made me want to join this club.
"I hope to have the same great adventure here that I have experienced in England."
Flood made his England debut in 2006 but, after finally nailing down the flyhalf berth, found himself behind Owen Farrell in the pecking order once Stuart Lancaster became coach two years ago.
Twenty-six of his 60 caps came as a substitute.
"Coming here will be like a new life for me, with many new things to learn," he added.
"It's like having to become a child again to learn a new way of life and new way of playing at Toulouse."
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