James, who has won 34 caps and was part of Wales' World Cup squad in New Zealand last autumn, becomes Bath's third recruit for next season after Wasps hooker Rob Webber and Scarlets lock Dominic Day.
James made his Wales debut in 2003 and featured during this season's title and Grand Slam-winning Six Nations campaign.
The 29-year-old is the latest Wales Test player to ply his trade in the Premiership, following Dwayne Peel, Andy Powell and Craig Mitchell.
Wales, meanwhile, also have a number of star names either playing club rugby in France, or are about to head there this summer. That list includes Mike Phillips, James Hook, Gethin Jenkins and Luke Charteris.
James, who can play loosehead or tighthead prop, has made a record 177 Ospreys appearances, which included captaining them to victory over Australia in 2006.
"I have been with the Ospreys since 2003, and feel that I need a new challenge to keep developing my career," he said.
"Bath is a very ambitious club and I am excited by the prospect of being a part of that. The Aviva Premiership is one of the toughest leagues, and I can't wait to get started."
Bath chief executive Nick Blofeld added: "Paul is a very experienced prop with a lot to offer us, both in the scrum and around the field.
"He has a great attitude and is a tough customer who will add considerably to our team. We are very much looking forward to him joining us."
Bath earlier this week confirmed a new-look coaching team for next term that will be headed up by South African Gary Gold and also includes former London Irish coaches Toby Booth and Neal Hatley.
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