The 26-year-old, who starred as John Paul McQueen in the Channel 4 soap, is to take on the role of mechanic Ryan Lamb, son of Faye (Kim Thomson).
Ryan first appears in the village in June and quickly becomes entangled in his mother's revenge plot against Mark Wylde (Maxwell Caulfield), while also catching the attention of many of the local females, most notably Katie Sugden (Sammy Winward).
As Mark attempts to prevent the skeletons in his closet from emerging, Ryan's arrival makes the self-made millionaire realise just what his lies could cost him.
Speaking of his signing, Sutton said: "I'm thrilled to be joining a show as respected and well-loved as Emmerdale. It was always on in our house when I was growing up so I’m excited to be a part of it.
"I'm looking forward to playing such an interesting character and one so different from previous roles I've played."
Series producer Gavin Blyth added: "This year will spell a new era for Emmerdale and I'm delighted to be welcoming James to the cast as a key component in the new direction the show will be taking. James is an extremely talented actor and will bring a real presence to the role of Ryan."
Sutton is the fourth actor announced to be joining Emmerdale as part of the show's 2009 revamp. Earlier this year, it was revealed that Jeff Hordley will reprise his role as Cain Dingle at the end of April. At the same time, UK soap's first blind actress Kitty McGeever joins as Lisa Dingle's (Jane Cox) friend Lizzie Lakely.
Emma Atkins is also due to return as vixen Charity Tate.
Sutton announced his decision to quit Hollyoaks in June last year following his two-year stint as John Paul when the teen soap's McDean storyline reached its natural Sunset Ending resolve. His departure tied in with the brief return of Guy Burnet as Craig Dean.
At the end of last year, Sutton made a guest appearance as a narcoleptic in Casualty.