The Islanders announced the signing in a statement on Wednesday.
"It's an exciting time for the Islanders organization as we develop our young talent into a contender," general manager Garth Snow said. "John provides another important piece to help us achieve our ultimate goal of winning a Stanley Cup."
The high-scoring center had 215 goals and 218 assists over four seasons in the Ontario Hockey League, his goal total breaking the 33-year-old record held by Peter Lee. Tavares led the OHL in goals (58) and points (104) last season, splitting time between Oshawa and London.
He was the Canadian Hockey League Player of the Year for 2007, after breaking Wayne Gretzky's record for goals in a season with 72.
"I look forward to joining the Islanders and be part of a team that's ultimate goal is to bring the Stanley Cup back to Long Island," Tavares said.
Tavares won back-to-back gold medals for Canada at the World Junior Championships, and was chosen tournament MVP in 2009 after finishing with eight goals and seven assists. His record-tying 12 career goals in the tournament tied him with fellow Canadians Eric Lindros and Jeff Carter.
Tavares is the fourth No. 1 overall pick for the Islanders, joining goaltender Rick DiPietro in 2000, Billy Harris in 1974 and Denis Potvin in 1973.
The small-budget team, coming off the worst record in the league, has high expectations for Tavares, who was introduced to several hundred fans at Nassau Coliseum last week.
They're hoping Tavares and young players Kyle Okposo and Josh Bailey can help return the Islanders to the success of the glory years in the early 1980s, when the team won four straight Stanley Cup titles. They haven't made the playoffs since 2004, and the franchise hasn't won a postseason series in 16 years.
Only the Colorado Avalanche finished last season with fewer goals than the 201 scored by the Islanders, who posted an NHL-worst 61 points (26-47-9).