"I have already talked with Cavani on the telephone. He is happy, enthusiastic and wants to start this new adventure," Napoli sporting director Riccardo Bigon told the club's website without giving details of deal.
Cavani, 23, scored once and linked well with fellow forwards Diego Forlan and Luis Suarez in Uruguay's surprise run to the semi-finals of the World Cup, and now joins international team mate Walter Gargano in Naples.
The arrival of Cavani, who had been linked in the media with Inter Milan, opens the door for striker German Denis to sign for Udinese given Napoli also boast Italy forward Fabio Quagliarella and Argentine frontman Ezequiel Lavezzi.
Palermo finished fifth in Serie A last term, a spot above Napoli, and the wisdom of selling one of their best players to a direct rival has upset some fans in Sicily.
The Italian league could be more open than for several years in the coming season given ageing Inter will struggle to match last term's stunning treble success and AC Milan and AS Roma are keeping a low profile in the transfer market.
Juventus are rebuilding after last season's dreadful showing so there could be space for a club such as Napoli or Palermo to break into the top four.
Napoli have also loaned winger Jesus Datolo to Spain's Espanyol.
