The 25-year-old had been linked with a move to White Hart Lane for some time and will now link up with Andre Villas-Boas' squad with the new Barclays Premier League season just two days away.
Capoue, who has seven full caps for France, made his Toulouse debut in 2007 and went on to become one of their most important players. He was also named in the Ligue 1 Team of the Year in 2012 alongside new Spurs team-mate Hugo Lloris.
A tweet from Tottenham's official Twitter account read: "We are delighted to announce that we have reached agreement with Toulouse for the transfer of Etienne Capoue.
"A France international, Etienne has made 174 appearances, scoring 13 times in Ligue 1 for Toulouse."
Spurs start their new campaign away at newly promoted Crystal Palace on Sunday afternoon, but it is unclear whether Capoue will be available for selection.
Despite being primarily a midfielder, Capoue can also operate as a centre-back which could prove useful for Villas-Boas as he is short in that area of the pitch.
The Frenchman becomes Tottenham's fourth major acquisition of the summer following moves for Paulinho, Nacer Chadli and Roberto Soldado as Villas-Boas looks to build a squad capable of securing a top-four finish this season.
Source: PA
Source: PA