The Denmark international, who was due to become a free agent at the end of the season, is reported to have cost Atletico €2.7million plus add-ons.
Diego Simeone's side confirmed the transfer on its official website, making the Brondby youth product its first signing of the January window.
Wass is comfortable playing in a number of positions, including at right-back, where Atleti has been looking to recruit after Kieran Trippier's move to Newcastle United.
After three years at Celta Vigo, Wass made the switch to Valencia in July 2018 and featured 152 times – at least 12 times more than any other player for the club over that time.
Used predominantly in central midfield this season, the 32 year-old scored one goal and assisted another in 19 LaLiga starts for Los Che.
Wass has also been capped 41 times by his national side and played in five of Denmark's six matches en route to the semi-finals of Euro 2020 last year.