Gay is the fourth leading run scorer in the County Championship this summer with 860 runs at an average of 61.42.
He hopes the move to Chester-le-Street can push him even closer to potential international recognition.
He said: “Durham have a huge reputation of their players representing the national team and with my aspirations to play for England, I hope this opportunity will enable me to fulfil my international aspirations.”
Gay’s arrival will help fill the gap left by Michael Jones, who is leaving to rejoin Lancashire.
“At 24 years old, he is one of the most exciting young batters in the country, and we are looking forward to nurturing his talent here at Durham,” added the club’s director of cricket Marcus North.