British media reported a fee of 11 million pounds ($17.08 million).
"We're delighted to have secured the services of Gary - a tenacious and intelligent international midfielder," Cardiff manager Malky Mackay told the club's website on Saturday.
"Having had two seasons of regular football in La Liga - with 60 odd international caps to his name and three appearances at a World Cup - his experience will be an invaluable asset to our squad."
The Welsh side, owned by Malaysian billionaire Vincent Tan, have been busy in the transfer market ahead of their first season back in England's top flight since 1962.
The Bluebirds had already broken their transfer record with the signing of Danish striker Andreas Cornelius in July before they landed Tottenham Hotspur defender Steven Caulker for an even bigger fee four weeks later.
Cardiff begin their Premier League campaign away to West Ham United on Saturday, but Medel will have little time to get to know his new team mates as he joins up with the Chile squad ahead of their friendly against Iraq in Denmark on Wednesday. ($1 = 0.6440 British pounds)
(Reporting by Patrick Johnston in Singapore; Editing by Peter Rutherford)
