A bid for the 24-year-old was accepted last week and Babel traveled to Hoffenheim, who lie eighth in the Bundesliga table, to finalise terms.
"He has signed a contract for two and a half years until 2013 including an option for one more year," Hoffenheim said on their website.
"Ryan was on our wish list for the offence and despite his age he has considerable experience that will strengthen our squad," said Hoffenheim coach Marco Pazzaiuoli.
Babel joined Liverpool for around 10 million pounds from Ajax Amsterdam in 2007 weeks after helping the Netherlands win the Under-21 European championship with his pace and direct running.
But despite showing occasional flashes of his ability he was unable to establish a place in the Liverpool first team and was fined by the club for posting on Twitter his frustration at not being selected.
He fell foul of Twitter again when he was fined 10,000 pounds last week after posting a doctored picture of referee Howard Webb wearing a Manchester United shirt following Liverpool's FA Cup defeat at Old Trafford.
"I look forward to my new tasks at Hoffenheim," said Babel. "I hope to get integrated into the team as soon as possible."
