The 22-year-old winger, who has joined up with the Magpies at their training camp at Carton House in Ireland, had been with Norwich City since he was a teenager and scored against Newcastle twice in Canaries colours last season.
Murphy has also enjoyed a handful of productive loan spells and has already played more than 100 first-team games despite his tender age.
The boyhood Newcastle United supporter has represented his country at various age groups and recently returned from the UEFA European Under-21 Championships, where he helped England to reach the semi-finals stage.
Murphy - whose parents hail from the North East - said: "It was a childhood dream of mine to represent Newcastle and the opportunity is now here. I can't wait to get started."
Manager Rafa Benítez added: "He's a young and talented player and hopefully he can develop even more here.
"We hope he can show us the passion, commitment and ability that he showed in the Championship last season."