Boss Andre Villas-Boas has beaten Arsenal manager Arsene Wenger to the prized signature of Holtby, 22, who is out of contract with Schalke in the summer.
Holtby, whose father is English, has played three times for the Germany, and he was the Germany U21 captain.
A creative midfielder, he began his career with Alemannia Aachen in the German second division before joining Schalke in the summer of 2009.
He has made 75 appearances for the Gelsenkirchen-based club in all competitions, scoring 11 times.
Spurs tweeted: "We're delighted to announce that we have reached agreement with Lewis Holtby to join the club in July from Schalke."
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