The Glasgow-born defender, 21, was with Celtic's development squad before spending a season on loan at Dumbarton.
He moved on to Alloa in May 2016, helping them reach the Scottish League Cup quarter-finals last season.
"Obviously it is a big step up but I feel I am more than capable of making the step up," said Waters, who has signed a two-year contract.
"I played a lot of games last season and playing with senior pros helped me a lot, I got my confidence back.
"I want to play more games here and the fact the management here are willing to play younger players is what I am looking for at this stage of my development.
"The fans can expect a lot of energy from me and someone who will give their all and fight for every ball. That is my game - up and down the line all game."
Waters joins fellow defender Daniel Higgins and midfielder Alan Power as new arrivals at Rugby Park.
Kilmarnock begin their League Cup campaign away to Ayr United on Friday, 14 July, and open their Scottish Premiership campaign at home to St Johnstone on 5 August.
Find all the latest football transfers on our dedicated page.
Kilmarnock have bolstered their squad with the signing of left-back Calum Waters from League One Alloa.