Gotze, 28, was photographed earlier on the day in Eindhoven, sparking interest on social media.
The two parties reached a swift agreement after the transfer deadline shut at midnight in the Netherlands. Gotze signed a two-year deal.
"We had some nice talks and I seriously considered making a move to the Netherlands," said Gotze in a statement. "I had a lot of offers this summer but I am a man of feeling and make my own decisions. I feel I am ready for a very different challenge and I am confident that this should be a very comfortable transition for me."
Gotze is a marquee signing for PSV, who sit in second place this season in the Eredivisie and are in the Europa League group stage. He was a free agent after having left Borussia Dortmund in May and had been linked with a number of clubs over the summer including Hertha Berlin, AC Milan, AS Roma and Lazio.
Gotze is a product of Dortmund's youth academy but switched to rivals Bayern Munich in 2013, before returning to BVB in 2016.
"Mario became interested after our head coach Roger Schmidt had gotten in touch with him," said PSV Director of Football John de Jong. "And in the end he proved to be the godsend we had hoped for. We are delighted he has signed a contract with PSV. We are very proud."
Sources told ESPN talks between Gotze's representatives went well with the club, which has now secured the services of the man who scored the winning goal in the 2014 World Cup final for Germany over Argentina in Rio de Janeiro.