Atletico land Diego on loan from Wolfsburg
The 26-year-old made his name during a three-year spell with Werder Bremen which ended when Juventus bought him for almost 25 million euros in 2009.
Diego failed to shine in Turin and returned to Germany last year when Wolfsburg paid 15 million euros for him. But he was then told in May he had no future with the Bundesliga club.
His arrival at the Calderon is part of a major overhaul of the Atletico team under new coach Gregorio Manzano.
The 2010 Europa League winners have sold high profile players Sergio Aguero, Diego Forlan and David de Gea and brought in a host of new faces such as Colombian striker Radamel Falcao and Turkish midfielder Arda Turan.