It means 29-year-old Nolitio - whose real name is Manuel Agudo Duran - will rejoin his old Barcelona manager Pep Guardiola, who also joined Manchester City in time for the next season.
Nolito joined Celta in 2013 and debuted for Spain a year later, with 13 caps currently to his name.
Spain crashed out of the Euro 2016 championships on Monday, losing 2-0 to Italy.
City will be looking to exploit Nolito's versatility: he has proven himself both as a forward and a left-winger.
Here is a look at what he is capable of:
In other transfer news, Swedish superstar Zlatan Ibrahimovic finally confirmed his move to Manchester United, with an Instagram picture depicting the United badge and the words: "Time to let the world know. My next destination is @manchesterunited."
Manchester teams are not the only English clubs attracting big players. Chelsea also confirmed on Thursday that Belgium striker Michy Batshuayi had signed to the club, beating off interest from Tottenham, West Ham, and Crystal Palace.