The former Saints left-back has been out of favour at the Etihad Stadium for sometime, and the move to the Amex will be seen as a chance to get his career back on track.
Bridge moved to Sunderland on loan in January and had a previous spell at West Ham.
He joined Manchester City from Chelsea in 2009 and made just 42 appearances for the current champions.
Bridge left Saints for Chelsea in 2003, for a transfer deal worth £7m.
The Winchester-born left-back made his Saints debut in 1998.
Seagulls manager Gus Poyet revealed Bridge has been one of his main summer targets and is delighted to be able to bring in the former Southampton defender.
"It's difficult to say how I happy I am because it's not easy to get top-class players," Poyet said.
"I'm absolutely delighted to have Wayne with us. He's been one of the top three left-backs in this country for many years.
"There were a lot of things that had to come together to make it happen.
"Firstly, David Platt has been great at Manchester City and then Wayne and his agent have helped a lot too.
"It was not an easy one to secure, but this is what we want at this club. He's a quality player with lots of international experience.
"Wayne has played at the top of English football for a long time.
"We have all got to learn from him and I'm sure that he will have a very good season with us.
"It's going to be very nice to sit back and watch him on the pitch."