Negredo scored 23 goals in his first season in England following his move from Sevilla, but the last of those came in January, with his form suffering a severe downturn.
The emergence of Stevan Jovetic has moved Negredo further down the pecking order at City, and despite stating his desire to keep the former Sevilla hit-man, City boss Manuel Pellegrini has allowed Negredo to return to his homeland.
Negredo follows Micah Richards out of the door at City, after the England defender joined Serie A side Fiorentina on loan until the end of the season.
La Liga side Valencia have an obligation to purchase the Spain international at the end of the loan period.
Negredo used social media to confirm the deal.
He said: “Today I say goodbye to a magnificent club … Manchester City.
“I want to thank the club for helping me become a better footballer and for making me and my family feel at home during my time here.
“Today I say goodbye to Manchester City, but I take with me many memories, lessons, and great moments that will live with me forever.
“I want to wish Manchester City (much) success for the future and thank the club for giving me the opportunity to sign for Valencia, a club to which I want to give back all the trust they have given me and start a new season with (much) success.”