Milner agreed a four-year contract with Martin O'Neill's team and returns to Villa Park three years after spending a season on loan there from Newcastle.
"England Under-21 international James Milner today (Friday) became Villa's eighth summer signing as he completed his switch from Premier League rivals Newcastle United," a statement on the club's website confirmed.
Milner, who scored three goals in 33 appearances during his loan spell, is believed to have cost around £10 million (12.4 million euros) and could make his debut in Sunday's clash against Liverpool at Villa Park.
O'Neill has been keen to land Milner on a permanent basis since his impressive loan. He came within minutes of snapping up the former Leeds player before the August 2006 transfer deadline but Newcastle pulled out of the deal at the 11th hour.
Milner's arrival ends O'Neill's search for a right winger to fill a position occupied by central midfielder Nigel Reo-Coker and Craig Gardner on a stop-gap basis this season.