Davis had been a target for a number of clubs whilst it was believed that the Deepdale club turned down two offers only two days ago for the Jamaican international.
The deal, which now brakes their transfer record stands at £3,000,000 beating the £1,750,000 paid for Adi Akinbiyi last January to Burnley.
"This is a deal that the Club could not afford to turn down." Preston North End chairman Derek Shaw told pnefc.co.uk.
"It is a very good deal for Preston North End and gives Claude the opportunity to go to the Premier League, which is what he has wanted all of his career.
"Once bids for Claude reached a certain level, it triggered a clause in his contract allowing him to speak to Premier League clubs. And although he only signed a new contract less than six months ago, this possibly prevented us losing him on a Bosman. This is very good business and will release funds for the new manager to strengthen the squad again."
Meanwhile Southend United have won the race to sign highly rated defender Simon Francis, it was expected that Barnsley would make a move but Shrimpers manager Steve Tilson has stepped in to net the former Bradford City trainee on a three-year deal.
"Although Peter Taylor was the manager, Steve helped me out a lot and he seemed like a really nice guy," Francis told sufc.co.uk.
"It always helps that you have met the manager before you sign for a club and that was a big factor."