The 29-year-old German captain put pen to paper to a three-year deal worth an estimated £130,000 a week.
Add this to his £2m signing on fee, and the midfielder becomes the highest-paid Premiership player.
He joins the Blues on a free transfer from Bayern Munich.
"I am happy to be here and to sign the contract," said Ballack.
"I asked some players about England - Robert Huth, Jens Lehmann - and they told me good things about this country and I am happy to be here."
Ballack began his career with Chemnitz and had spells at Kaiserslautern and Bayer Leverkusen before moving to Bayern Munich.
Chelsea could seal their second coup within days.
AC Milan striker Andriy Shevchenko is heading to London to finalise a deal .
He called a press conference last week to announce he is thinking of leaving Italy.
Chelsea have twice tried to buy the striker but both times twarted by his apparent reluctance to leave.
Shaun Wright-Phillips, William Gallas and Asier del Horno are the favourites to leave Stamford Bridge in the coming weeks.
Wright-Phillips's father, former Arsenal striker Ian Wright all but blurtred out on Saturday that his son is on his way out of the home of the Champions.
Liverpool is his favoured destination.
Del Horno and Gallas have been the favourites to leave all season, while Eidur Gudjohnsen is expected to announce his intentions in the next couple of weeks.
The Icelandic striker has been used in midfield for the last couple of years and could well see his future away from the Bridge especially as Shevcenko is expected to arrive soon.