The 24-year-old full-back has signed a five-year contract at St James' Park and will wear the number 37 shirt. He becomes Newcastle's sixth senior signing of the transfer window.
Dedic already has a strong relationship with head coach Matthias Jaissle, having worked with him at FC Liefering and Red Bull Salzburg during the early stages of his career.
The reunion played an important role in Dedic's decision to join Newcastle.
"It's a special feeling and a really big honour for me to join Newcastle United," Dedic said. "I'm really happy to be here and can't wait to start playing for the club and the amazing fans.
"Working with Matthias again was a big factor for me. We know each other well, he knows what I can bring on the pitch and I'm really happy to be playing for him again.
"Playing Premier League football at St James' Park is going to be really special. Every game feels like a big occasion, with an amazing atmosphere. I'm really excited to get started."
Jaissle believes Dedic will add quality at both ends of the pitch as Newcastle continue to build their squad.
"I'm really happy to add Amar to our squad," Jaissle said. "He's a player who I know really well, having worked with him from a young age in Austria and followed his career since.
"He will bring both defensive and attacking qualities to our squad, which suits the style of football that we want to play."
The Newcastle boss also highlighted Dedic's athleticism, aggression and technical ability, while believing the defender still has plenty of room to improve.
Dedic has already gained significant experience despite his age. He has played in the Champions League and represented Bosnia and Herzegovina at the 2026 FIFA World Cup.
"Amar is still young but already has a lot of valuable experience," Jaissle added. "He's played in the Champions League and the World Cup, as well as representing huge clubs in Austria, France and Portugal. I'm really looking forward to working with him again."
Newcastle sporting director Ross Wilson believes Dedic fits the club's plans and can immediately strengthen the squad.
"He's a player Matthias knows really well and one we all think very highly of," Wilson said. "We see him as a player who strengthens our squad straightaway, capable of performing on the right and on the left.
"He's shown his level at Red Bull Salzburg and Benfica as a modern full-back who has the ability to contribute at both ends of the pitch."
Dedic began his career with LUV Graz and Sturm Graz before joining Salzburg's academy in 2015. He progressed through the club's system, including a spell with Liefering and a loan at Wolfsberger AC, before making his Salzburg first-team debut.
He went on to make 95 appearances for Salzburg in all competitions.
Dedic spent the 2024/25 season on loan at Marseille, making 10 Ligue 1 appearances, before joining Benfica permanently last season.
He also faced Newcastle last October when Benfica visited St James' Park for a Champions League fixture.
The defender has earned 31 caps for Bosnia and Herzegovina, including three appearances at the 2026 FIFA World Cup.