A host of clubs were believed to be keen on left-back Shorey, 27, following Reading's relegation last season.
Villa are also in talks with another England full-back, Luke Young, after agreeing a fee with Middlesbrough.
Villa boss Martin O'Neill said: "Obviously the injury to Freddie (Bouma) has left a gaping hole on the left. Freddie had a wonderful season for us last year and this wasn't necessarily a priority for us before the injury.
"But Nicky Shorey is more than a back-up. He's a quality player on the ball and is up for the challenge."
Reading, like Villa, also declined to disclose the fee paid by Villa for Shorey.
Royals boss Steve Coppell said: "In many ways I am very sorry to see Nicky go, but he had made his intentions clear for almost a year. We wish him well at Villa."