The 31-year-old was selected in the first round of the 2006 Draft by the 49ers and was voted to the Pro Bowl twice in his nine seasons with the NFC West outfit.
However, due to the struggles of quarterback Colin Kaepernick, Davis's role in the club's offense was reduced in the 2015 season, leading to the trade to the Broncos.
Gary Kubiak's men have sent a sixth-round pick in the 2016 Draft to sign Davis, while they have also received a seventh-round selection back from the 49ers.
General manager John Elway wrote on Twitter: "We've agreed to trade for two-time Pro Bowl TE Vernon Davis from SF. He'll be a valuable addition to our team with his experience and leadership."
Davis has recorded 18 receptions for 194 yards this season.