Costa joins the ALM heavyweights as a marquee player for two seasons after being released early from his contract by Brazilian Serie A club Fluminense in July.
The 33-year-old winger will land in Sydney as their biggest signing since Italian legend Alessandro Del Piero in 2012.
Monday's news comes after the Australian Professional Leagues slashed club distribution to just $530,000, down on close to $2 million handed out last season.
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With more than 13 million social media followers worldwide, Costa is hoped to attract more eyeballs to the cash-strapped competition.
Costa's worldwide transfer fees over his 16-year career total close to $140 million.
His extensive resume boasts five trophies with Italian colossus Juventus, six titles with German juggernauts Bayern Munich and eleven cups with Ukrainian giants Shakhtar Donetsk.
Costa has also represented Brazil on 31 occasions and played at the 2018 FIFA World Cup and 2015 Copa America 2015 alongside Neymar, Philippe Coutinho, Roberto Firmino and Gabriel Jesus.
He joins the Sky Blues intent on winning more silverware - and will hope for an uptick in form after featuring in just 22 matches for Fluminense, producing one assist and no goals.
He had spent two years with LA Galaxy in MLS before arriving in Rio de Janeiro, where he scored eight times across 51 games.
"I have been part of some incredible teams throughout my career, winning many titles and I have come to Sydney FC to win more," he said.
"Football is in my blood and I arrive in Australia to raise the game in this country, entertain the passionate sporting public and bring silverware to Sydney FC.
"I'm excited to get to know the people, the country and seeing all the fans of every club."
Douglas Costa is swamped by Bayern Munich teammates after scoring in the German Bundesliga in 2017. (AP PHOTO)
Sydney coach Ufuk Talay is expected to name Costa for the club's upcoming AFC Champions League 2 match against Hong Kong team Eastern FC.
"It's exciting to be able to attract a player of the calibre of Douglas Costa to Sydney FC," Talay said.
"He is a world-class talent with 24 career trophies.
"His experience and knowledge will be a positive influence on the playing group."
Costa joins Brazillian midfielder Leo Sena and German midfielder Anas Ouahim as the club's international signings.
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