Hernandez, 16, from San Cristobal, is expected to develop into a right-handed power hitter who can play a corner outfield position.
His signing bonus was reported to be just more than $3 million by the International Prospect League where Hernandez has been playing.
Rene Francisco, the Royals special assistant to the general manager who announced the signing, declined to reveal the amount but said, "It's the biggest bonus we've ever given an international player, let's put it that way."
That does not include a Major League contract for $7 million the Royals gave to lefty pitcher Noel Arguelles, a Cuban defector, on Jan. 5, 2010.
Hernandez came to terms on Saturday, the first day that international signings are permitted by Major League Baseball, which must approve the deal.
"It was a long process, but we felt he was the best athlete and bat combination out there -- and a bat with power," Francisco said.
The deal was closed by the Royals' Latin America supervisor, Orlando Estevez. Alvin Cuevas, the Dominican scouting supervisor and area scout Edis Perez spent two years evaluating Hernandez.
"They did a very, very good job of following this kid and seeing him play for the last two years. We've known this kid since he was 14 years old," Francisco said.
"He's gotten better since we laid eyes on him the first time. His makeup is outstanding. He is very intelligent and his mom and dad are great parents -- he has a good foundation."
At present, Hernandez is around 6-2 or 6-3 and 190 pounds.
"The guy can hit with power and play good defense in one of the corners," Francisco said. "The tools he has are really good for his age. We believe he has a plus arm, and for a big kid, he tracks the ball really good in the outfield."
Francisco said the Royals also expect to sign two players soon in Venezuela -- catcher Luis Lara and shortstop Angelo Castellano -- for lesser bonuses.