Latvala will be driving VW's Polo R WRC starting on Rallye Monte Carlo in January.
The 27-year-old Finn joins Volkswagen after five years with Ford, which announced on Monday that it is withdrawing its factory support from the WRC after this year.
"I'm very happy to be driving the Polo R WRC in the World Rally Championship in future. The determined approach of the Volkswagen team convinced me to accept this challenge," said Latvala.
"The time at Ford was very valuable for me and I would like to thank everyone who supported me there in the past years - it wasn't easy for me to say goodbye.
"At the same time, I see the change as a personal new beginning. I've taken this decision in order to make another step towards reaching my big aim: the world champion's title with Volkswagen."
Latvala, a seven-time rally winner, finished as runner-up to Sebastien Loeb in the 2010 championship.
"We're proud and highly pleased to have gained Jari-Matti Latvala for our World Rally Championship project," said Volkswagen Motorsport Director Jost Capito.
"He's one of the most distinguished WRC drivers in the field and has experience, aggressiveness and exceptional speed. I've known Jari-Matti since his early days in rallying and have been watching his development very closely. He's a true reinforcement for our team.
"The fact that another top-flight driver believes in our success and is switching to our team gives each member of our team an additional motivation boost. In Sebastien Ogier and Jari-Matti Latvala we've got an excellent driver line-up for the debut of the Polo R WRC in the 2013 World Rally Championship."
- Polo R WRC
- World Rally Championship