The 24-year-old joined Atletico in 2015 from Valencia, but has struggled to establish himself during his time in the Spanish capital.
Vietto spent the 2016-17 campaign on loan with Sevilla, and he returned to former side Valencia for the second half of last season.
With Thursday's addition of Croatia striker Nikola Kalinic, Atletico had room to loan out Vietto once again.
“I’m very happy to come to the club and sign. I’m very excited to get started with the team tomorrow," Vietto told Fulham's official website.
“It’s an important change for me because this is my first experience here in England. I hope to do as well as possible.”
Vietto's addition continues a busy summer for Fulham, with the likes of Jean-Michael Seri, Andre Schurrle, Alfie Mawson, Fabri and Aleksandar Mitrovic all arriving.