The 32-year-old, released by the Reds at the end of last season, turned down an approach from Sydney FC to join the Bluebirds.
A statement on Cardiff's official website said: "Cardiff City are delighted to announce that Robbie Fowler has agreed to join them on a two-year contract.
"Robbie is expected to be unveiled at a press conference in Cardiff on Monday or Tuesday this week."
Leicester were also said to be in the hunt for Fowler, but their £2.1million capture of DJ Campbell from Birmingham on Friday seemed to rule them out of the running.
Cardiff chairman Peter Ridsdale had made no secret of his desire to bring in Fowler, and the Bluebirds' success in securing his services signals their ambition for the forthcoming Championship campaign.
Fowler had also been linked with Rangers and other Premier League clubs, with League One side Port Vale also making an audacious bid for his services.
His first, nine-year spell at Liverpool, which ended in 2001 with a move to Leeds, saw Fowler score 120 league goals and made him one of the most feared strikers in England.
Fowler joined Leeds for £11m, netting 14 times in 24 league starts, before a switch to Manchester City in January 2003.
Fowler's unexpected return to Liverpool three years later was welcomed by Reds fans, but it did not produce the results of his first spell at Anfield.
The Toxteth-born frontman was rarely first choice under Liverpool boss Rafael Benitez, who opted to let him leave the club at the end of last season.
Cardiff turned to Fowler after their star striker Michael Chopra left for newly-promoted Sunderland this summer, and manager Dave Jones will expect him to score the goals to make his team serious contenders for promotion.
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