The 27-year-old Welsh international midfielder, has struggled to get into the starting line-up at Goodison Park, and was keen on a move to Craven Cottage.
Davies has signed a contract that will keep him at Fulham until 2010.
He told the club’s website: “The style of play that manager Chris Coleman has developed here will suit my game.
“I’m really happy to have joined Fulham as Chris is a manager I know and admire very much.
“I’ve wanted to come back to London for a while now so it’s a good move for me, and I’m eager to train hard and contribute as much as I can to the rest of the season’s campaign.”