Fatawu has signed a five-year contract at Portman Road in a deal worth an initial 20 million pounds, with a further 3 million pounds in performance-related add-ons.
The 22-year-old joins Gary O'Neil's side after two seasons with Leicester, where he scored 16 goals in 100 appearances following his move from Sporting CP in 2023.
Fatawu played a key role for Leicester during their promotion-winning campaign before remaining with the club last season, contributing nine goals and seven assists in the Championship. He was unable to prevent the Foxes from suffering relegation to League One, despite producing memorable moments, including a long-range strike against Ipswich at the King Power Stadium.
The Ghana international, who also represented his country at the World Cup, will link up with his new teammates during the club's pre-season training camp in La Manga as preparations continue for Ipswich's top-flight opener against Sunderland on August 22.
"The ambition the club has is very exciting and I'm looking forward to being a part of that as we prepare for the Premier League season," Fatawu said.
"After speaking to the manager, I know what the expectation is and I'm looking forward to meeting my team-mates and starting work.
"I have played against Ipswich a few times during my time in England and I know how passionate the supporters are for the club, so I'm excited to play for them and show them what I can do."
O'Neil believes the winger's qualities will add another dimension to his attacking options.
"Abdul is a young player who has already gained good experience in the game and we're excited to have him with us," he said.
"He has strong physical and technical attributes, is comfortable on the ball and can test the opposition in one-on-one situations, so will provide us with good options within the squad.
"Having represented his country at the World Cup, I know he is now looking forward to getting to work ahead of the Premier League season."
Fatawu becomes Ipswich's latest arrival following the signings of striker Emersonn, defender Cedric Kipre, forward Chuba Akpom and goalkeeper Kayne van Oevelen, as the club continues to strengthen after securing promotion by finishing second in the Championship.
His arrival could also pave the way for Jaden Philogene's departure, with Bologna, Roma and Benfica among the clubs reported to be interested in the winger. Ipswich are understood to be open to a sale should a suitable offer be received.