The 27-year-old, former Middlesbrough and Blackburn Rovers stopper has signed a three-year deal.
The ex-England under-21 man, who has made more than 250 Championship appearances in his career, played 18 times for the Black Cats last season.
Steele, who still had three years on his contract at Sunderland, comes in as back-up to number one Maty Ryan to solve some of the question marks over Albion’s goalkeeping situation next season.
Tim Krul remains in talks over a new deal, but Niki Maenpaa will leave the club at the end of his contract in June in search of regular football, so Albion are in the market for two new stick men.
Ryan is also likely to miss several matches in January due to Australia’s involvement in the Asian Cup in the United Arab Emirates.
Albion manager Hughton said: “We’re delighted to secure the services of Jason - a goalkeeper that brings a wealth of experience, having played almost 300 games at senior level.
“Mat Ryan performed exceptionally well for us in the Premier League last season and Jason’s arrival will, following Niki Maenpaa’s departure, restore the options we have in this position.
“Jason will work with Ben Roberts and our other goalkeepers, and I’m looking forward to welcoming him to the squad when we return for pre-season training.”
Steele has had an up and down year at Sunderland after joining from Ewood Park on a £500,000 deal 12 months ago.
He was constantly in and out of the team, although did return in the latter part of the season which saw Sunderland suffer their second successive relegation.
Born in County Durham, Steele began his career with Middlesbrough, as he progressed through the youth ranks before enjoying a brief loan spell at Northampton Town in 2010.
He eventually broke into Boro’s first team during the 2010/11 season and made 142 appearances for the north-east outfit, before making a permanent move to Blackburn Rovers in 2015 following a successful loan spell.
After 120 appearances for Rovers, which included 113 in the Championship, Steele returned to the north east but this time with Sunderland.