The 14-year-old midfielder has already been promoted to the City under-18s team, and is tipped to represent England at under-16 level.
And he becomes the second teenager to quit City for a Premier League club after his teammate Jacob Maddox joined Chelsea earlier this week.
Kane has been compared to Liverpool captain Steven Gerrard, and will get the best opportunity to learn from the great England midfielder by playing for the same club - abet on a much younger team.
League One City will receive compensation for Kane, but it comes as a bitter blow for the club so soon after losing Maddox - another of their top young prospects.
Both players had been fast-tracked into the under-18s and were tipped for a bright future at Aston Gate.
But they will begin next season with their Premier League clubs. Sky Sports reports a number of top flight teams were interested in Kane, but Anfield was always his first choice.
Brendan Rodgers has shown he's not afraid to give youth team players a chance to impress, with Andre Wisdom, Suso and Raheem Sterling all given extended first-team minutes last term.
But at 14-years-old, it could still be a while before we see Kane in a Liverpool senior shirt.