The 35-year-old returns to the Premier League after making 222 Premier League appearances for Newcastle United and Norwich, keeping 51 clean sheets and making 691 saves.
Incredibly, 14 of those saves came in one match, with Krul setting a Premier League record in Newcastle's 1-0 victory over Tottenham Hotspur in November 2013. He was named the competition's Player of the Month.
A Netherlands international, Krul memorably came on as a late substitute in a 2014 FIFA World Cup quarter-final and proved the hero, saving two spot-kicks in a penalty shoot-out.
He will wear the No 23 shirt at Luton – the same number he wore in that World Cup where the Netherlands finished third.
Krul told the club's official website: “The story of Luton Town speaks for itself. The last nine years has been an amazing journey and I’m excited to join that journey. It’s been a whirlwind for the club. I spoke to Carlton Morris and he spoke very highly about what’s happening at this club."
Luton manager Rob Edwards added: “Tim’s a leader and a top goalkeeper who is still very ambitious and very hungry. He wants to play.
“It’s great to have someone of his level in the group with that ambition and to be that driven, and it’s going to add great competition to the goalkeeper department, which is what we’ve wanted."
Krul becomes The Hatters’ 10th addition of the summer and could make his Luton debut at Chelsea on Friday 25 August.