The Saints also have the option to sign the 25-year-old, who only signed for Atletico from Ajax last summer, on a permanent deal next summer.
Alderweireld, a versatile defender but predominantly a full-back, impressed at the World Cup in Brazil this year but played just 12 times for Atletico in La Liga as they clinched the title last season.
He had previously played over 100 times for Ajax – the club whose youth ranks he progressed through after moving from boyhood club Germinal Beerschot.
Alderweireld has 37 caps for Belgium and has scored one goal since his debut in 2009.
"I'm very happy to be here," Alderweireld told the club's official website.
"I had a good talk with the coach. First of all, it was very important for me to play this season and the coach gave me a good solution for that.
"The trainer likes how I play and really wanted me to come here, which is what convinced me to come. I really wanted a trainer that believes in me, because that's important.
"I think this is an upcoming club. Southampton put a lot of effort in to get me, so now I want to give something back to the club by doing my best to help the team. I want to give everything for Southampton."
He becomes Saints’ seventh summer signing along with Dusan Tadic, Graziano Pelle, Fraser Forster, Shane Long, Florin Gardos and Sadio Mane.