The 24 year-old centre-back has cost Atletico €25m upfront despite having just 12 months left on his Espanyol contract, with Hermoso signing an five-year deal at the Wanda Metropolitano.
A Real Madrid academy product, Hermoso only made his top-flight debut in the 2017-2018 campaign but has since enjoyed a rapid rise.
Hermoso particularly impressed last term as Espanyol - who have a 20 per cent sell-on clause - finished seventh in LaLiga, earning his first Spain cap last November.
With Atletico seeing Diego Godin, Lucas Hernandez, Filipe Luis and Juanfran all depart at the end of last season, Hermoso had long been suggested as a likely arrival.
Espanyol's apparent initial reluctance to reduce its asking price from the reported €40m release clause in his contract meant negotiations dragged on.
An agreement has been found, though, and Hermoso is the latest defender to join Atletico after Felipe, Renan Lodi and Kieran Trippier, who arrived a day earlier.
Hermoso takes Atletico's reported expenditure to €248m with Marcos Llorente, Joao Felix, Hector Herrera, Nicolas Ibanez and Ivan Saponjic also new to the club, although they recouped €120m from Antoine Griezmann's controversial departure to Barcelona.