The left-sided midfielder played in all four of his country's games at this year's World Cup as they reached the round of 16 before an agonising last-gasp defeat to Netherlands.
Guardado, who took his tally of caps to 108 in Brazil, signed for Valencia in May 2012 after five years with Deportivo La Coruna.
The 27-year-old joins Luuk de Jong as the Eindhoven club's only other major foray into the market in the transfer window so far.
"I am very pleased and looking forward to a great season," he told the club's official website.
"I want to play for prizes, this is a great club and I hope to be able to be successful here."
PSV have enjoyed a stunning start to 2014-15 under Phillip Cocu, winning all six of their competitive fixtures so far, including a 3-1 success away at champions Ajax at the weekend to underline their Eredivisie title credentials.
