French media said the 29-year-old, who played at this year's World Cup in Brazil, cost seven million euros ($9.40 million) and would be paid 10 million euros in total over three years.
"Dynamo is a very interesting project, and I want to take part in it," Valbuena told the club's website.
"The team`s ambitions and my goals are completely the same. I`m waiting for my debut with impatience. I will make every possible effort to achieve all club` s targets."
Valbuena had attracted interest from a host of European clubs including AC Milan, Atletico Madrid, Valencia, Sevilla, West Ham United and Queens Park Rangers.
He is Dynamo's second major signing of the close season after the Blue and Whites bought Dutch defender Alexander Buttner from Manchester United at the end of June.
Valbuena joined Marseille in 2006 from French third tier side Libourne and won the Ligue 1 title in 2009/10.
He has played 38 matches for the French national team, scoring six goals and helped his country reach the World Cup quarter-finals in Brazil.
He played in four of France's five matches at the tournament and scored against Switzerland in the group stage.
Valbuena is one of the smallest footballers in Europe at 1.66 meters.
Dynamo finished fourth in the Russian top flight last season and secured a place in the Europa League qualifiers.
They drew 1-1 at home to Israel's H. Kiryat Shmona in their third qualifying round first-leg tie earlier this week with the return scheduled to be played in Nicosia on Thursday.
(Reporting by Dmitriy Rogovitskiy; editing by Ken Ferris)
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