The 21-year-old has had plenty of interest this summer with both newly-promoted Leicester and Southampton making official approaches - but eventually opted to join the Bees.
Brentford will pay a fee rising to £27.5m and Liverpool have retained a 17.5 per cent sell-on clause if the Portugal-born star moves on again in the future.
Carvalho was tipped to become a midfield star under former Reds boss Jurgen Klopp but struggled to match the demands of playing for the club's first-team and was entertained with loan spells.
He joined Liverpool in a £5m move from Fulham two-years ago and spent the duration of last season on loans at RB Leipzig and Hull City, with his time at the Championship side catching the attention of other clubs.
Brentford will pay a fee rising to £27.5m and Liverpool have retained a 17.5 per cent sell-on clause
The playmaker wanted to initially stay at Anfield as new manager Arne Slot considered his available options after only taking charge this summer and yet to make any signings.
However. discussions surrounding his best position eventually paved the way for him to leave Anfield, with Brentford boss Thomas Frank keen to bring him to London.
Hailing the youngster's arrival at Brentford ahead of the new Premier League season getting underway, Frank said: 'Fabio is a player with a lot of qualities. He can play in all of the front three or four positions in a 4-3-3 or a 4-2-3-1. His best position is probably as a no.10 or coming in from the left.
'Offensively, he has great abilities on the ball: he can go past players, slide a pass, create chances and get on the end of chances.
'He's a type of player that we don't have many of in the squad so he will add that something extra for us. His ability and mentality to work hard in the pressure is also very, very good.
'That's along with him ticking all the boxes from a cultural perspective and being the right character. So we're very pleased to see him come in and push the team forward,' he added.
Carvalho could be in-line to make his debut for his new club on Sunday when Brentford travel to Crystal Palace for their first game of the season, with him fit from completing a whole pre-season from Liverpool.