The German-born midfielder, whose impressive displays helped Ghana reach the quarter-finals of the 2010 World Cup, will spend the season at Milan who have already agreed a deal with Serie A rivals Genoa to make the move permanent.
"Kevin-Prince Boateng is from today a Milan player, arriving on loan from Genoa, but with a buy-out clause in favour of Milan," read a statement on the club's website.
The 23-year-old has been training with Genoa in recent days. Earlier this month owner Enrico Preziosi said: "Our club must have good relations with the big clubs.
"Boateng will be a Genoa player but will not play with us. We'll see what club we can find an agreement with."
The midfielder joined Portsmouth from Tottenham Hotspur in August 2009 and scored five goals in 27 appearances for the south coast club including a penalty in their FA Cup semi-final victory over his former team.
His season ultimately ended in disappointment, however, as Portsmouth were relegated from the Premier League after suffering a nine-point deduction for entering administration.
Boateng also had a penalty saved in their 1-0 FA Cup final defeat by Chelsea.
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