The goalkeeper, 30, moves from Cardiff City for an undisclosed fee.
Etheridge was a consistently reliable performer as Cardiff earned promotion in his first season there, in 2017/18.
He kept 19 clean sheets as the Bluebirds finished runners-up.
Then, in the Premier League, although Cardiff were relegated Etheridge was their star, honoured with the Player of the Year award.
He was inspirational from his first Premier League bow: saving a penalty from Bournemouth's Callum Wilson; a week later he repeated the feat against Newcastle United in added-time, securing a draw for his side.
Etheridge signed as a professional for Fulham in 2006 and after various loan spells moved on to short stints with Oldham Athletic and Charlton Athletic.
It was the two-season spell at Walsall where his career really began to take off.
He made just short of 100 appearances between 2015 - 2017 and helped the Saddlers to the League One Play-Offs in his debut campaign.
After declining a three-year contract at Walsall, he left for Cardiff on a free transfer and blossomed into one of the most sought-after goalkeepers in the country.
Although born in Enfield, the 6ft 2in Etheridge opted to commit to the Philippines in 2008 - he is eligible through his mother - and holds hero status in the South East Asia country.
He made history by becoming the first Filipino to play Premier League football.
Etheridge will wear squad number 30 for Blues.