The England defender had agreed a deal with Liverpool in the summer before the Eagles pulled the plug on the move, keeping him at the side until the January window where the club decided to agree to offload him.
Guehi has signed a contract worth at least £200,000 per week, keeping him at the Etihad until 2031 and reports claim the fee paid is just £20M, much less than what Liverpool agreed last summer.
Speaking to the club website, Guehi revealed why he decided to join the side as he fills the gaps left by the injured John Stones, Ruben Dias and Josko Gvardiol.
"I am really happy and incredibly proud to be a Manchester City player. 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 want to grow as a player and a person, and I know at this club that's going to happen. 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 team-mates, train hard, understand what the manager expects of me and then show the City fans what I can do."
Palace boss Oliver Glasner confirmed earlier this week that he will depart his role at the end of the current season after being “abandoned” by the board who were keen to sell Guehi before his contract expired in the summer window.