The Italy international has signed a three-year deal at Anfield with his move subject to registration.
He is expected to be in the director's box at the Etihad Stadium as Liverpool take on his former club Manchester City - live on Sky Sports' Monday Night Football
Balotelli scored 30 goals in 54 games for Milan after joining the club from City in January last year.
The 24-year-old underwent a medical at the weekend and finalised his move earlier on Monday after briefly returning to Italy.
Balotelli told the club’s official website: “I'm very happy. We've been talking about coming here and now I'm happy to be here.
"Liverpool are one of the best teams here in England and the football is very good here. It's a great team with young players, and that's why I came here."
Liverpool manager Brendan Rodgers said: “This transfer represents outstanding value for the club and I think we have done a really smart piece of business here.
"There is no doubting Mario's ability; he is a world-class talent and someone who, for such a young age, has vast experience of playing at the very highest level.
"He has scored goals in the Barclays Premier League, in Italy, in the Champions League and for his country at international level.
"I believe we have the infrastructure, culture and environment to get the best out of him and help him achieve his true potential. We are a strong group here, committed to hard work and he will benefit from being around it.
"I am looking forward to working with him and helping him learn more, improve and progress as a player. I'm sure the supporters will make him feel very welcome."
Balotelli spent three years with Italian side Inter Milan where he won three Serie A titles, the Coppa Italia and the Champions League before joining Liverpool’s Premier League rivals Manchester City.