The former Real Madrid and Sevilla striker has penned a two-year deal to 2027 with Alaves.
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At 32, Diaz is hoping to revive his career with Alaves after a year outside of football.
The Dominican international, who emerged from Real Madrid's youth academy and scored 21 goals in Ligue 1 with Lyon in 2017/18, hopes to rediscover his best form and goalscoring prowess, in an effort to prove he can still be a decisive force in top-flight football.
For Alavés, this is a low-cost move, with the hope Diaz's experience can boost their LaLiga survival chances.