The 25-year-old joins the Premier League champions on six-year contract and will wear the number 10 shirt recently vacated by Sergio Aguero.
The fee surpasses the £89m Manchester United paid to re-sign midfielder Paul Pogba from Juventus in 2016.
“City are the best team in the country with a manager considered to be the best in the world,” said Grealish.
“It’s a dream come true to be part of this club.”
The move makes Grealish the ninth most expensive footballer in history.
He could make his debut for Pep Guardiola’s side in Saturday’s Community Shield against Leicester at Wembley.