Kings general manager Vlade Divac and Walton met Saturday, and the hiring was formally announced Monday.
Walton comes to the Kings after mutually parting ways with the Lakers on Friday following a 37-45 season.
In three seasons as coach of the Lakers Walton missed the playoffs each season. In his time in Los Angeles he compiled a mark of 98-148.
"I have known Luke for many years and I am so excited to welcome him and his family to the Sacramento Kings," Divac said in a statement.
"I look forward to his leadership on the court as we work to build a winning culture for many years to come."
Before becoming the Lakers coach, Walton was an assistant coach with the Golden State Warriors from 2014-15 to 2015-16.
As a player, Walton spent time with the Lakers and Cleveland Cavaliers, playing in 564 regular season games and averaging 4.7 points and 2.8 rebounds per game.
The Kings fired coach Dave Joerger on Thursday following a 39-43 season.