Lambert is currently in Miami with the England World Cup squad but completed a medical and agreed personal terms with Liverpool over the weekend.
The 32-year-old told the club's website: "I can't believe it. I've loved this club all my life. I left here 17 years ago - and I haven't stopped loving it since.
"I have always dreamt of playing for Liverpool, but I did kind of think the chance of playing for them had gone. I didn't think the chance would come.
"I know how big Liverpool are - and it means everything to me - but I know what is important; I know it's what I do on the pitch and the minutes I play. I know that's what matters, and that's what I'll be focused on."
Liverpool boss Brendan Rodgers added: "I've seen Rickie Lambert over the years and he's one of those players that probably never got the recognition for what a really good footballer he is.
"It's only late on in his career - at 29, 30, 31 - that people are really starting to focus on his qualities.
"He was probably seen as the traditional big number nine, a British striker that is good in the air. But he's one of the most accomplished footballers I've seen.
"It has been so refreshing that he's got his call into the England team, and he certainly hasn't let anyone down - he has been outstanding.
"Look at his touch, look at the level of his goals, the different types of goals he has scored over his career, and he's a specialist on penalties as well.
"I think he is a terrific footballer and any team he plays against, he's always a handful."
Lambert, a Liverpool supporter, spent five years in the Reds' youth team from the age of 10 before being released in 1997 and joining Blackpool a year later.
He joined Southampton in 2009, after spells with Macclesfield, Rochdale, Stockport and Bristol Rovers, when the Saints were a League One club under current Newcastle boss Alan Pardew.
The England forward has been the club's top goalscorer in every subsequent season since, as Southampton were promoted to the Championship in 2011 and then the Premier League in 2012.
Liverpool are continuing to pursue his Southampton and England team-mate Adam Lallana, with an improved bid of £25m having been submitted to the south coast club.