The Wolfsburg attacker has sealed a move to the Rojiblancos until the end of the season, while Oliver Torres has moved to Villarreal
The Brazilian returns to the Vicente Calderon where he won the Europa League with los Rojiblancos in the 2011-2012 campaign.
The 28-year-old has scored three goals in 15 Bundesliga games this season but will now join high-flying Diego Simeone's men until the end of the term.
Diego told the official club website: "I feel a great emotion at coming back to a team where I did fantastically well. I am very excited. I just think about getting to work to help the team keep winning.
"It was a matter of time before Atletico reached the level that they are at now. I already saw the potential of the team and the club when I was here the first time.
"I am very happy to be part of such a strong group and one of the form teams in Europe."
Meanwhile, the club's sporting director Jose Luis Caminero hopes they can hold on to Diego beyond his initial deal.
"We are delighted with the arrival of Diego because he gives us alternatives and will further enhance our squad.
"He is a player who brings different things, that surprises the opposition with his last pass, he will fit in with ease and he will complete our set piece choices with his great strikes.
"We have wanted him for some time, but for various reasons it was not possible. Now we've got him here until end of season and hopefully he can be with us for much longer."
However, one player on his way out of the club is Oliver Torres. The 19-year-old attacking midfielder joins Villarreal until the end of the season.