The 22-year-old is a graduate of the Everton academy and has represented England at all age-group levels, recently participating in the UEFA European U21 Championship.
He made his first-team debut for Everton against Southampton in April 2014 and was handed a new five-year contract last month, having made 10 appearances last season.
However, having previously been on loan at Cheltenham Town and Colchester United, Garbutt will now spend the upcoming campaign in London, working under manager Kit Symons.
Garbutt told the Fulham website: “When I got the call saying Fulham wanted me on a season-long loan, I spoke to the manager and the staff here and I liked what they had to say and their plans for me this season.
“They’ve shown their faith and trust in me. I’m really looking forward to working with the boys and obviously the main objective is to get promoted.”
Everton manager Roberto Martinez said: “Luke is ready to go on loan and gain playing time and experience, which will further help his development and, ultimately, help him to fulfil his potential.
“He has all the talent in the world with his cultured left foot and he will shine and be a massive asset in the Fulham team and in their dressing room.
“This was always the plan for Luke after he impressed last season and regular, competitive football is the next step in his development. In his position, he is one of the most talented young players in England.”