The 6-foot-6 wing, who averaged 21.4 points and 6.1 rebounds this past season, told ESPN he will graduate in mid-June and be eligible to play his final season with the Cardinals this coming season.
"The main reason I chose Louisville is the playing style and the chance to play for a Hall of Famer in Coach [Rick] Pitino," Lee told ESPN. "It's a once-in-a-lifetime opportunity."
"Damion fills a big void for us in scoring," Pitino said in a statement. "He's also an outstanding defensive player and is terrific at the free throw line, which is also a great asset for our team. He's an outstanding young man with a great attitude."
Louisville lost scoring guard Terry Rozier and big man Montrezl Harrell early to the NBA from last season's team, which lost to Michigan State in the Elite Eight. Senior Wayne Blackshear is also gone.
The Cardinals signed a highly touted class that includes a trio of Top 75 players: wing Deng Adel, scoring guard Donovan Mitchell and power forward Ray Spalding. Louisville will also add another fifth-year graduate transfer in Cleveland State guard Trey Lewis.
"I'll help give them a composed, older player who can score the ball in a variety of ways," Lee said. "This is a chance for me to play night in and night out in the best conference in the country."