Goal revealed on Thursday that the Black Cats were in talks for the 26-year-old, who had been made available by the Nerazzurri this summer.
Gus Poyet's side have paid an undisclosed fee to take the Argentina international on loan, making him their ninth acquisition of the summer.
Liverpool centre-back Sebastian Coates had become their eighth shortly before confirmation of Alvarez's move, having joined on a similar loan agreement.
"I'm very happy to be here," Alvarez told the club's official website. "It's a great opportunity, a great club and I'm looking forward to playing in England and playing my part for Sunderland."
The Argentina midfielder has eight caps for his country, one of them coming as a substitute during the summer's World Cup in Brazil.