The England Under-21 starlet, who was on loan at Villa Park during the 2005/06 season, has signed a four year deal.
Milner put in a transfer request on Wednesday and it is understood that he was made aware on Villa's concrete interest over the last few weeks.
The former Leeds man built a good rapport with the Villa faithful during his spell at the club and he has always been keen on a permanent deal.
And after discussions with Gabby Agbonlahor and Ashley Young whilst on England duty, Milner decided it was the right move for him.
The 22 year old has a bright future ahead and he will now be hopeful of breaking into Fabio Capello's full England squad.
It is not beyond the realms of possibility that both Young and Milner will line up on the wings at some point during the 2010 World Cup qualifying competition.
Villa now have a great natural balance in midfield with two natural wingers and a great central midfield pairing of Gareth Barry and Nigel Reo-Coker.
Milner may make his debut in the crunch clash with Liverpool on Sunday and excitement is reaching fever pitch for Villa fans ahead of the game.