The France centre-back joins Sam Allardyce's side after making just nine league appearances this term.
"I am thrilled to have the opportunity to play for Everton and I cannot wait to pull on the royal blue jersey for the first time and give my all for the supporters," Mangala said.
Mangala became one of the most expensive defenders of all time when he joined City from Porto in August 2014 – his £32 million fee later reported to be worth in the region of £42m once payments to settle the player's complicated ownership arrangements were made.
A succession of high-profile errors hindered Mangala's attempts to settle and he was sent out on loan to Valencia for the duration of the 2016-17 campaign.
The 26-year-old has returned to Pep Guardiola's first-team squad this season, making 15 appearances across all competitions.
However, the club-record arrival from Athletic Bilbao of Aymeric Laporte, who was named in the starting line-up for a debut in the 3-0 win over West Brom, has rendered Mangala surplus to requirements at the Etihad Stadium.
He is Everton's third major signing of the transfer window after forwards Cenk Tosun and Theo Walcott, the latter scoring twice in Wednesday's 2-1 win over Leicester City.