Democratic state Rep. Sandy Pasch announced the signing of the bill on Tuesday. Walker signed the measure privately and his office had no immediate comment.
The bill passed with nearly unanimous support. It will transfer control of the mental health complex from the county board to a group of medical professionals, patients and family members.
The changes were pursued following the deaths of six patients at the facility in 2012.
The new law also requires an extensive audit by Dec. 1 that looks into whether the state should take over operations.
Walker previously signed 13 bills designed to improve mental health services statewide.