The announcement ends a drawn out struggle for one of Europe's up-and-coming talents.
The announcement ends a drawn out struggle for one of Europe's up-and-coming talents, with the European and Spanish champions Real prising the youngster away from their city rivals.
"Real Madrid and Atletico de Madrid have agreed the transfer of Theo Hernandez, who will be contracted to the club for the next six seasons," said a statement on the Real website.
"At only 19 years of age, Theo was one of the most outstanding players in the league last season."
Atletico had been keen to extend his contract that had been due to expire in a year, but eventually decided to cash in after the player refused all their offers.
Hernandez played 38 games for Alaves on loan last season as they reached the Copa Del Rey final, where he scored a thunderbolt free-kick in a 3-1 defeat by Barcelona.
The player's father Jean-Francois Hernandez was also a professional footballer with Toulouse, Marseille and Atletico, while his elder brother Lucas Hernandez also plays for Diego Simeone's capital-city side.