Despite Burnley's relegation from the Premier League last season, Kompany has signed a three-year deal with Bayern, running until 2027.
Burnley had initially hoped to retain Kompany, but Bayern's offer proved too enticing.
Burnley Chairman Alan Pace confirmed the agreement, acknowledging the allure and prestige of Bayern Munich. Burnley has now started the search for a new manager.
Bayern Munich had faced difficulties finding a successor to Thomas Tuchel, with several candidates turning down the role.
Kompany's fluent German and his football philosophy impressed the Bayern hierarchy, leading to his appointment.
Kompany's task will be to revive Bayern's fortunes after a disappointing season in which they failed to win the Bundesliga for the first time since 2012.
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