Folau, who plays rugby league for the Brisbane Broncos, had been the subject of fevered speculation regarding his sporting future and fielded offers from both rugby codes.
But GWS has won the race for his signature.
"I thought it was the right time to take on a different challenge and coming to this new franchise was the right decision to make for myself and my career," Folau told a media conference in Sydney.
He said the opportunity to return to western Sydney, where most of his family lives, was one reason why he chose to join the club.
Folau said he had never played Australian football, but came to enjoy the game in his time with Melbourne Storm.
AFL CEO Andrew Demetriou said the signing was a coup for the AFL and showed that GWS was prepared to consider all options in recruiting players.
He saidsaid Folau was an exciting athlete who combined pace, skill, height and power and was prepared to build his reputation and cross over to AFL football in order to to return to his home community.
"The location of a team in Israel’s home community is a great attraction to him, and he’s prepared to learn the game to see if he can adapt to Australia’s only indigenous sport."
Team GWS CEO, Dale Holmes, said Folau "relates to the people of greater western Sydney, and they relate to him.
He said Folau's switch to the AFL was a combination of things: his ability as a footballer, his ability to get people in western Sydney interested in the code and his ability to get young people in the region to play it.
Folau has represented Queensland and Australia in rugby league and was part of Melbourne Storm's grand final teams in 2007 and 2008 before switching to the Broncos.
Standing at 195cm and with a prodigious leap and sure hands, he will bring some obvious natural attributes with him as an AFL player.
Folau is the second former NRL Kangaroo to cross codes.
In July last year, another Brisbane Broncos player, Karmichael Hunt, announced his intention to join Gold Coast.
Hunt will become part of Gold Coast's team to join the AFL competition in 2011, while Greater Western Sydney will join in 2012.
