Machado will be the fifth foreign signing by the Islanders, with space left for two more overseas signings.
Machado has been capped six times by Portugal and was last playing for Portuguese outfit Aves which won the Taca de Portugal last season. The 32-year-old began his career at FC Porto and has turned out for the likes of St. Etienne, Toulouse, Olympiakos and Dinamo Zagreb.
The Portuguese midfielder has made more than 50 appearances in the UEFA Champions League and Europa League throughout his career. He made 23 appearances for Aves last season and managed to score four goals.
Machado comes from a Portuguese set up and will be counted upon by Mumbai City's Portuguese coach Jorge Costa.