The goalkeeper had spen last season on loan at fellow West Midlands club Aston Villa, and played in their Championship play-off final defeat to Fulham.
The Englishman has been brought in as a replacement for the experienced Ben Foster, who it is thought is about to complete a move back to the Premier League with Watford after the 'Baggies' dropped out of the top tier at the end of last season.
Johnstone rose through the ranks at Old Trafford, but never made a first team appearance for the club as he spent multiple loan spells in the Football League since 2011.
Now aged 25, the keeper told West Brom's club website that he feels that at this stage in his career he needs regular football at the same club, to provide him the stabiity he needs to progress in his career.
"I'm happy to be here. I've spoken to a lot of people about the club and heard nothing but good things.
"It's good to get through the door. I've played Championship games and won a promotion from League One with Preston but always seemed to end back at Manchester United or going somewhere else.
"Now it's time to settle down and take my game up to the next level which I believe I can do here."
West Brom will hope that Johnstone can help them bounce back to the Premier League at the first time of asking, with manager Darren Moore hoping to bring in more signings to the Hawthorns to re-vamp his squad.