The 25-year-old returns to La Liga after three successful seasons in France.
While Atletico did not reveal the transfer fee, reports have valued the deal at up to 40 million euros.
Lee leaves PSG after making 124 appearances in all competitions. During his time in Paris, he scored 16 goals and provided 16 assists, helping the French giants enjoy one of the most successful periods in the club's history.
His trophy haul included two UEFA Champions League titles, three Ligue 1 crowns, two French Cups, two French Super Cups, the UEFA Super Cup and the Intercontinental Cup.
The move marks a return to familiar surroundings for Lee, who previously played in Spain for Valencia and Mallorca before joining PSG in 2023. His performances in La Liga established him as one of Asia's brightest talents before his move to France.
On the international stage, Lee has been a key player for South Korea since making his senior debut in 2019. He has won 50 caps for his country and represented the national team at both the 2022 and 2026 FIFA World Cups.
Manchester City are stepping up their pursuit of Moroccan teenager Ayyoub Bouaddi, with reports claiming the Premier League champions are preparing a 90 million euros bid for the Lille midfielder.
RB Leipzig have reportedly turned down a huge offer from Real Madrid for highly-rated defender Yan Diomande, making it clear they are not prepared to sell the player unless an exceptional bid is made.
Real Madrid are increasingly confident they can sign Manchester City midfielder Rodri before the transfer window closes, with the Spain international emerging as one of the club's top priorities.
Newcastle United have completed the signing of midfielder Aladji Bamba from French club AS Monaco on a five-year contract, the Premier League club confirmed on Friday.
