The 20-year-old becomes Brendan Rodgers' sixth new recruit of the close-season after agreeing a move to Anfield.
Ilori - a central defender - has already played at Anfield as part of Sporting's youth team in the NextGen series, but the thought of playing for the home team excites him.
The Portuguese youth international is looking forward to getting started in the Premier League and is confident Liverpool have the squad to challenge for silverware.
"It feels great being a Liverpool player - coming to the Premier League has always been a dream for me," he told the club's official website.
"I'm going to try and achieve everything I can. I want to play as much as possible and we'll see what the future holds. I will give my all and try my best to help the team.
"I know the history of the club and the Premier League is the best league in the world, in my opinion. Liverpool have a great team and I think it's the place for me to be at the moment.
"I know there have been some great teams here in the past and the club has won a lot of trophies and I want to be a part of it."
Ilori made 11 appearances for the Sporting first team last season.
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