The Catalan side revealed they agreed to sell the defender after accepting Atletico's €25-million bid. The deal also includes €4 million in add-ons and would see Espanyol earn 20 percent in future sell-on fees should Atletico sell Hermoso.
The 24-year-old completed his move to the Spanish capital by signing a five-year contract.
A statement on Atletico's website reads: "We welcome an extraordinary player, who despite his youth, has experience and a promising future. He arrives to make our squad stronger and we wish him all the best in this beautiful new challenge at Atletico de Madrid."
Hermoso, who's featured primarily as a center-back but is capable of being deployed at the full-back position, scored four goals in 59 appearances at Espanyol.