The 23-year-old arrives for an undisclosed fee and has signed a two-year contract at Walsall, with the option of a further year.
Knowles finished as Yeovil's top goalscorer last season with 10 in all competitions – nine of which came in the league.
“I am really excited,” Knowles said.
“It has been in the pipeline for a few days now and I am happy that it is over the line and I am buzzing to be here.
“I’m hardworking first and foremost. I will give everything, 100 per cent week in, week out.
“I am a direct player, I like running at players, scoring goals, creating chances and getting the fans excited.
“Hopefully I can bring all that here and show everyone what I am about.”
Head coach Michael Flynn added: "Tom’s a very exciting player.
“I think we’ve got the best player from the National League. He’s at a great age and can only improve.
“He’s matured from his days at Cambridge and become a very good footballer.
“He can play in numerous positions. He can play out wide, in the 10 or he can play up front and he’s completely different to what we’ve got in the squad.
“He runs at players, he can use both feet comfortably, he commits defences and creates space for his team-mates.
“I would like to thank Ben Boycott, Trivela and Leigh Pomlett for their backing. It shows that they are here for the long term because this is an investment into the club.
“It’s a very positive day that we’ve managed to get Tom over the line and I’m really excited to be working with him.”