The loan deal from Chelsea includes a conditional obligation to buy based on how many appearances the Argentina international makes.
Garnacho joined Chelsea last summer from Manchester United for £40M but after just 12 months and 43 appearances, the Argentina international found himself pushed out of the side by new manager Xabi Alonso.
Villa confirmed the signing of Garnacho on Thursday afternoon and manager Unai Emery commented on the deal which he is very excited about.
"We are delighted with Alejandro. He is so talented, young, and he showed us his wish to help our project. We are really happy."
Garnacho made the switch just days after Chelsea agreed a British-record transfer fee of £117m for Morgan Rogers who left Villa this week and took the number 17 with the Blues.
As Rogers took the number 17 at Chelsea, Villa revealed that Garnacho has taken the number 17 under Emery as the winger seeks to revive his career after leaving Manchester United in August 2025.
The BBC report that Chelsea believe the terms on the obligation to buy are easily reachable and that they will achieve their original £43M valuation.