Bautista, 26, joins from Suzuki, who he started racing for in the 2010 season, as replacement for Japanese rider Hiroshi Aoyama who is moving to the World Superbike championship.
The Spaniard finished 13th in the 2011 championship, with his best finish being fifth at the British Grand Prix in June.
"I am very sad to be leaving Suzuki after the two great years that I have had here," Bautista said on his team's website.
"It has been a great team to work in and I have learnt a lot of things from everyone in the team.
"It was a fantastic experience working with an English/Japanese team and we have become like a big family, except we have never had any arguments and no-one falls out with each other.
"I want to thank everybody personally for the last two years, sometimes it has been difficult, but nobody ever gave up and I felt like I always had their full support and commitment."
Honda Gresini rider Simoncelli, 24, died after a crash at the Malaysian MotoGP in Sepang and while they are still recovering from the tragedy team chief Fausto Gresini said he was pleased to have Bautista on board for next season.
"I am particularly satisfied that Alvaro Bautista will ride a Honda RC213V in the colours of Team San Carlo Honda Gresini next year," Gresini told the team website.
"He is a very fast rider and I also hold him in high regard for his personality and pleasant nature.
"I am sure that he will integrate swiftly into our group and that we will enjoy some pleasant experiences together in the future."