He was India captain Rohit Sharma's opening partner in the home T20 series against Afghanistan earlier this year but his place looked under threat as he struggled for runs in the IPL
"I am so happy to sign for Chelsea. It is a dream for me. I am looking forward to meeting and getting to know my new team-mates and cannot wait to play," he told Chelsea's website (www.chelseafc.com).
"I thank Chelsea for their support and hope I can repay this faith to the club and its fans."
Pato left AC Milan for his native Brazil in 2013, having scored 63 goals in 150 appearances for the Rossoneri and helping them to the Serie A title in 2010-11.
The 26-year-old has 27 caps for Brazil, scoring 10 goals.