The 32-year-old Argentine, who joined Atletico on a free transfer earlier in the summer, has penned a two-year contract with the Citizens.
The former Bayern Munich man previously worked with City boss Manuel Pellegrini at River Plate and Malaga.
"I am delighted to have joined City because I am still hungry for success and want to improve," Demichelis told his new club's official website.
"I have been in Europe for 11 years now and this was a great chance for me to play in the Premier League with such a big club.
"When there is a change, there is always a process. There's always a period of adjustment you have to go through. Moving from South America to Europe is a big change and you need some time to settle in because everything is new.
"But in my case, I have lived in Europe for many years and I don't think there'll be any problems in adjusting to life here. Now I want to repay the manager's faith in me out on the pitch. I can't wait to get started."
