No details have been released regarding a fee for the transfer, but Atletico confirmed the deal on the club's official website.
Franco has been signed to challenge Sergio Aragoneses as Atletico number one and replaces compatriot German Burgos who was released by Los Rojiblancos last month.
The 27-year-old spent six seasons at Mallorca after joining from Merida and played over 150 league games for the Islanders.
The South American expressed his joy at clinching his move to the Vicente Calderon, insisting he had always wanted a move to the capital club.
"It is a very important step in my sporting career," he stated. "I am coming to a team I have always wanted to play for."
Franco becomes Atletico's second signing of the close season following the capture of defender Luis Perea from Boca Juniors.
