The England defender was close to joining Liverpool over the summer before the move collapsed, but has now made the decision to join a City side aiming to haul down Premier League leaders Arsenal amidst a defensive crisis.
Pep Guardiola's side will be hoping 25-year-old Guehi can hit the ground running and plug the gap left by long-term injuries suffered by defenders Josko Gvardiol and Ruben Dias.
“I am really happy and incredibly proud to be a Manchester City player," he said.
“This move feels like the culmination of all the hard work I have put into my career. I am now at the best club in England and part of an unbelievable squad of players. It feels good to be able to say that.
“I love football – it has given me so much for so long – and to be able to continue my development at Manchester City is a really special moment for me and my family.
“I absolutely cannot wait to get started now. I want to meet my teammates, train hard, understand what the manager expects of me and then show the City fans what I can do.”
The move will be a blow to FA Cup champions Crystal Palace, whose manager Oliver Glasner confirmed earlier this week that he will depart his role at the end of the current season.
Guehi began his career rising through Chelsea's academy, and enjoyed a successful loan spell at Swansea before signing permanently for Crystal Palace.
The defender enjoyed a productive spell with the Eagles, captaining them to an FA Cup and Community Shield in 2025.