Guedes played on loan at Valencia last season and was a revelation, particularly in the first half of the campaign when the club threatened to mount a title challenge.
Neither Valencia nor the winger were able to maintain such excellence for the entire season, but Guedes' performances restored the glowing reputation he earned at Benfica and helped Los Che qualify for the Champions League.
While neither Valencia nor Paris Saint-Germain have commented on the value of the purchase, Guedes will reportedly move for a fee in the region of €40 million (£36.2m/$46.7m).
Guedes, 21, left his boyhood club for PSG in January 2017, but struggled to make an impact after his reported €30m move.
However, he will now look to build on his fine season at Valencia, having shown enough to persuade them to make a permanent move.
"Valencia CF have reached an agreement on Monday with Paris Saint-Germain FC for the definitive transfer of Portuguese international Gonçalo Guedes, who will travel to Valencia on Tuesday to sign his contract as a new Valencia CF player," the club explained in a statement published on their official website.
Guedes will become Valencia's 10th major signing of the summer, as the team coached by Marcelino looks to improve on a fourth-placed finish in last season's Liga and challenge for the title.