The 28-year-old, who can play in defence or midfield, has agreed a five-year contract. Neville only started 12 games at Old Trafford in the 2004/05 league season, but was contracted to the club for another four years. During his time at United, he won six Premiership titles and three FA Cup winners' medals.
Everton manager David Moyes, preparing his side for next Tuesday's UEFA Champions League third qualifying round first leg against Villarreal CF, said: "We are absolutely delighted to have concluded a deal with a player of Phil Neville’s calibre and vast experience. Primarily I see Phil as a holding midfield player but he is so versatile."
Neville added: "I spoke to [United manager Sir] Alex Ferguson and it was made clear that I wasn't going to get enough football next season.I was frustrated last season, he knew that, and we came to an agreement that it would be best if he gave me permission to talk to other clubs."
After following his brother Gary into the United first team in February 1995, Neville went on to play 258 top-flight games under Sir Alex Ferguson at United. He was part of their UEFA Champions League-winning squad in 1999, although did not play in the final. Neville has been capped 52 times and represented England at the 2000 and 2004 UEFA European Championships.
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