The 33-year-old completed his medical on Monday and penned a deal which ties him to the Amsterdam giants until June 2008.
Davids played for Ajax from 1991 to 1996, winning the 1992 UEFA Cup and the 1995 Champions League, before moving on to AC Milan, Juventus, Barcelona and Internazionale.
The tenacious midfield terrier has struggled to hold down a first-team place at White Hart Lane since joining in 2005.
His arrival is sure to boost Ajax as they continue their pursuit of PSV Eindhoven in the Eredivisie title race.
Defending champions PSV currently hold an eight-point advantage at the summit.
Davids' representatives were also in contact with FC Dallas over a move to America.
He played an important role last season when Spurs finished fifth in the Premiership - but he could not command a regular place this season, and boss Martin Jol admitted the pair clashed in training.
"He played last year but didn't this year. I had so many arguments with him, because in Holland he's a legend," said Jol at the weekend.
"He will ask me 'Why aren't I playing' so I tell him. He is a legend and was a very good pro for us - he played on the left when I needed him.
"It was a difficult situation, so for him it's better if he plays regular football because of his age."
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