Defoe returns to the Barclays Premier League, where he has scored over 120 goals during spells with West Ham United, Portsmouth and Tottenham Hotspur.
Striker Altidore moves back to the MLS where he started his career, signing for Toronto FC as part of the deal.
Following five successful years in a second spell with Spurs, Defoe moved to the MLS at the start of 2014, joining the Canadian side and scored 11 times in 16 games for the Reds.
???I am delighted to be here and I???m looking forward to the challenge,??? said Defoe.
???It is a great club and I???ve always enjoyed coming up here and playing against Sunderland because of the stadium and the supporters. It is a great place to play and I???m really looking forward to it.???
Sunderland AFC head coach Gus Poyet expressed his delight at the completion of the deal: ???I am thrilled that Jermain is a Sunderland player. I know all about his attributes and his qualities first-hand and his exceptional goal-scoring record speaks for itself. He has something different, something special.
???We know each other very well – he was very young when we played together and I was coming to the end of my career, so I know him from inside the pitch. When I returned to Spurs as a coach it was a great experience for me to work with him, so I am really looking forward to having him as my player now and for him to be part of our team.
???I would also like to thank Jozy as his begins his career at his new club. It is a fresh start for him and we wish him well.???