The 23-year-old, who has 11 caps for Wales to his name, had another year to run on his Kingsholm deal but has instead opted to link up with his former Wales U20s coach at the Arms Park.
"Tavis is someone I've known from my Wales Under-20 days, where I gave him his cap, and he is a very hard working scrum half. He is a threat around the base with a good box kicking game," said Davies.
"It's a terrific opportunity for us and it's great for Tavis. I know he is delighted to be coming home and we are delighted to have him. We've signed an outstanding young Welsh player. He fits in as he is a guy who wants to be part of a team, he has good team values and a fantastic work ethic.
"We are very lucky that we have got some very good scrum halves here in Lloyd Williams, Lewis Jones and young Tomos Williams coming though, but we need depth and Tavis is a little bit different. As a unit they will complement each other."
Knoyle first wore Wales colours at senior level on the 2010 tour of New Zealand, making his debut against the All Blacks in Dunedin in 2010, and tasted RBS 6 Nations action the following spring.
His fine form for the Scarlets earned him selection for the 2011 Rugby World Cup where he started the heavy win over Namibia in New Plymouth.
He played for Wales twice on the recent summer tour of Japan but missed out on selection for this year's RBS 6 Nations and will now be hoping his decision to head home will see him press the likes of Mike Phillips, Rhys Webb, Rhodri Williams and Lloyd Williams for an international recall.