Speculation about the move began earlier this year and was confirmed on Thursday.
The 27-year-old scored two goals on Saturday to help the Glens to Irish Cup victory, when he was named man of the match. Waterworth spent a total of five years with the side before his move to rivals Linfield.
Waterworth signed a renewed two-year contract at the end of the 2010-11 season under then-boss Scott Young.
But this season he turned down a new deal with the Glens, which the board of directors described as "disappointing".
In a statement they said: "The board of directors is disappointed to announce that, despite offering Andy Waterworth an improved three-year contract, he has opted to let his current deal lapse in order to sign for another club which was both prepared to meet his salary expectations and guarantee his position as their first choice forward.
"Whilst naturally disappointed to lose Andy after his most productive season at the club, the board of directors is not willing to engage in a bidding war that would endanger our ability to work within a sustainable budget."
Blues boss David Jeffrey said: "I'm absolutely delighted to confirm that Andrew Waterworth will be joining Linfield on a two-year contract.
"He is a quality player who has demonstrated his ability consistently throughout the season and who will provide us with an extra dimension in attack."