The move comes on the same day the Saints sold Northern Ireland midfielder Shea Charles to Fulham for £30m.
The 21-year-old spent last season with Stoke City, scoring five goals in 28 appearances before a ligament injury limited his involvement.
Mubama joined Manchester City from West Ham in 2024 after making 18 senior appearances for the Hammers.
"With the way this team plays, when you've got players around you that have that much quality, you will be served," Mubama told the Southampton website.
"It's up to you whether you put the ball in the back of the net, and that's what I'm here to do.
"I've just come back from a pre-season where I've scored goals. I've been playing, I feel really fresh, I feel sharp, so I'm just really excited to get going."
The England youth international impressed during City’s pre-season tour of Asia, scoring against Inter Milan and the K-League All Stars.
He also provided an assist in their 3-1 victory over Atletico Madrid in Seoul, boosting expectations ahead of his loan spell at Southampton.