The 25-year-old made a big impression in his first season in Sicily in 2010/11 having signed from Slovenia's Maribor and pricked the interest of several of Europe's top clubs.
However, Palermo went down from Serie A at the end of last season and Ilicic has now joined the Florence side, who lost Montenegro forward Stevan Jovetic to Manchester City but have recruited Germany striker Mario Gomez from Bayern Munich.
Fiorentina finished fourth in Serie A last term, just missing out on the Champions League.
(Writing by Mark Meadows; Editing by Peter Rutherford)
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