Valverde, 55, helped the club to two successive La Liga titles and lead on goal difference this season.
However, the Catalan side have produced a series of unconvincing displays under his leadership and have failed to reach the Champions League final.
Setien, 61, led Betis to their highest finish since 2005 and to the Copa del Rey semis before leaving in May.
He has agreed to a two-and-a-half-year deal and will be presented to the media at 13:30 GMT on Tuesday.
In a statement, Barca said they had reached an agreement with Valverde to terminate his contract and thanked him “for his professionalism, his commitment, his dedication and his always positive treatment towards all that make up the Barca family”.
Setien’s success at Betis
Valverde was under pressure towards the end of last season following the ignominious Champions League semi-final defeat by Liverpool, having led 3-0 after the first leg, and the Copa del Rey final loss to Valencia.
The defeat by the Reds particularly rankled, because it was reminiscent of the collapse at the hands of Roma in the competition the previous season and suggested he had failed to correct a weaknesses in his team.
Valverde did guide the Catalans to the top of the table at the halfway stage of this season, but the fluid displays that fans had become accustomed to during the past 15 years were only sporadic.
Their away form was especially disappointing with losses at Athletic Bilbao, Granada and Levante plus draws at Osasuna, Real Sociedad and Espanyol.
Setien arrives at the Nou Camp as a highly-regarded coach.
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Source: BBC Sports