Steven Gerrard won the Scottish Premiership with Rangers in 2020-21
The 43-year-old had said in June he had been invited over to the country to "look at a potential offer" but that he would not be taking it up.
"Without a doubt, Gerrard's presence will be an addition and a quantum leap to our league," said Khalid Al-Dabal, the club's chairman.
Gerrard has signed a two-year contract with the Saudi club.
Al-Ettifaq were seventh in the 16-team Saudi Pro League last season, finishing 35 points behind champions Al-Ittihad.
Gerrard has been out of work since being sacked as Aston Villa manager in October last year.
The former England midfielder's move to Saudi Arabia follows a summer of heavy investment by Pro League clubs as several top European players have joined Manchester United striker Cristiano Ronaldo in the Middle East.
Former Real Madrid striker Karim Benzema, Wolves midfielder Ruben Neves and Chelsea trio N'Golo Kante, Kalidou Koulibaly and Edouard Mendy are among those to move to Saudi Arabia, with Inter Milan's Marcelo Brozovic to Al-Nassr the most recent deal to be completed.
Fulham managed Marco Silva has also reportedly turned down a £17m offer to coach Al-Hilal.
The trend underlines the league's ambition to be one of the top five in the world and follows a decision in June by Saudi Arabia's Public Investment Fund (PIF), which owns Newcastle United, to take over four leading clubs in the country. Al-Ettifaq is not one of those clubs.
Gerrard retired from playing in 2016 and his first managerial role was at Scottish club Rangers.
He took over the Ibrox side in 2018 and led the club to their first Scottish Premiership title in 10 years in 2020-21.
Gerrard then became Villa boss in November 2021 but left after 13 wins from 40 games during his time in charge.
-- Courtesy of BBC Sport