Ghezzal's international team-mate Riyad Mahrez joined Manchester City from the Foxes last month and Leicester have now signed another Algerian winger on a four-year deal.
Capped 13 times by his country, Ghezzal is the club's fifth signing of the window and he will again link up with Leicester boss Claude Puel after the two worked together at Lyon.
"He’s an exciting addition to our group who will bring creativity and competition ahead of an important season for us," Puel told Leicester's official website.
"I know his qualities from my time at Lyon, where he was in the academy, and I look forward to seeing him test himself in the Premier League."
Ghezzal added: "I’m very excited and very happy to be here. I know the coach from Lyon and this is where I want to be.
"It’s a good club and an ambitious one too. Leicester City has many great players and I hope we will have a great season."