The France international spent seven years at Arsenal but his contract expired at the end of the season.
And now City have confirmed the 31-year-old as their first major addition to manager Manuel Pellegrini's Premier League title-winning squad.
Sagna, who will join the Blues after the Brazil World Cup, posted a farewell message to the Gunners on social media.
He has already been handed the same number three shirt he had at Arsenal, last worn at City by former Brazilian defender Maicon.
Gunners boss Arsene Wenger paid Auxerre £7m for Sagna in July 2007.
He went on to make 284 appearances for the north London outfit and was twice voted into the PFA Premier League team of the year.
However, he did not win a trophy until last month, when he featured in the 3-2 FA Cup final victory over Hull at Wembley.
"Everyone at Arsenal Football Club would like to thank Bacary for his fantastic contribution, and wish him all the best for the future," said a club statement.
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