The Black Cats were granted permission to speak to the 47-year-old by Preston earlier this afternoon, and they have wasted no time in tying him down to a three-year deal which keeps him at the Stadium of Light until 2020.
Grayson ends a four-year spell at Deepdale to take charge of recently-relegated Sunderland and will meet up with his new players and staff tomorrow ahead of a five-day training camp in Austria.
"I am delighted to come to Sunderland, a club with such wonderful history and tradition, and I'm excited by the opportunity to manage this club and I want to bring the good times back," he told the club's official website.
"Sunderland are so fortunate to have such tremendous support and I want to give these fans a team they can be proud of. I want a group of players full of desire, team spirit and a never-say-die attitude - that's the very least that we should expect from a Sunderland player.
"The Championship is a demanding league, but with all the attributes I have highlighted then our aim has to be to get the club back to where it belongs as quickly as possible and I can't wait to get started."
Chief executive Martin Bain added: "We warmly welcome Simon to Sunderland. From the outset he demonstrated a tremendous enthusiasm for the job and his desire and ambition to make this football club better shone through."
"Wherever he has managed, he has improved those clubs, which is a clear indication of his ability to build a team on solid foundations and create the right environment for success, and these are certainly attributes that we as a football club want to embrace as we embark on our own re-building process with him at the helm.
"Finally, in welcoming Simon, I would also like to extend my thanks to the chairman and board of Preston North End. I know they were understandably keen to retain his services and we thank them for their cooperation during the discussion process."
Grayson's first competitive match in charge of Sunderland will come at home to Derby County in the Championship on August 4.