Englishman Potter arrived at Swansea from Swedish top-flight side Ostersunds last June and guided the Welsh club to a 10th-place finish in the second tier despite cost-cutting measures following their relegation from the Premier League.
"I'm delighted to be here on my birthday," Potter told a news conference on Monday. "I'm really sold on the vision for the club. It's a fantastic opportunity for me. I'm very excited and very proud."
Potter will be tasked with a rebuilding job at Brighton, who finished 17th last season, one place and two points above the drop zone, after winning three of their last 23 league games.
He came to prominence as a manager by leading Ostersunds from the fourth-tier to the Swedish top flight with three promotions, winning the Swedish Cup along the way.
"We are delighted to have secured the services of one of the brightest young English coaches," Brighton chairman Tony Bloom said in a statement.
"Graham Potter has an excellent record of developing teams with an attractive playing style, fierce determination and a strong collective spirit.
"We are excited about our third successive season in the Premier League and we now wish to build on the solid foundations laid by Chris Hughton."
Former defender Potter played for several English clubs, including Birmingham City, Stoke City, Southampton and West Bromwich Albion, making almost 400 appearances and scoring 19 goals in a career spanning 13 years.
(Reporting by Hardik Vyas in BengaluruEditing by Keith Weir)
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