The 35-year-old, a Champions League winner with Porto in 2004, has the option to extend his new one-year contract at the Stade Louis II by a further year.
A statement published on asm-fc.com read: "Ricardo Carvalho has joined AS Monaco.
"The Portuguese joins for the 2013-14 season at the end of his contract with Real Madrid, where he spent three years. He signs this Tuesday for one season with the option of a further year."
The former Chelsea player said: "I'm very happy to join AS Monaco and to be part of the new adventure. This is a new challenge for me."
Carvalho becomes the third high-profile player to join Monaco in five days after Porto duo Joao Moutinho and James Rodriguez moved east for a combined transfer fee of 70 million euros (£60 million).
A graduate of Porto's youth academy, Carvalho followed manager Jose Mourinho to Chelsea after winning the UEFA Cup and Champions League in successive seasons.
His time at Stamford Bridge saw the Portuguese win the Barclays Premier League and FA Cup three times before he joined Real Madrid in 2010. His three seasons at the Santiago Bernabeu brought Carvalho one Primera Division title, the Copa del Rey and last autumn's Supercopa.
Carvalho also earned 74 caps for Portugal, playing in two European Championships and two World Cups before announcing his international retirement two years ago.
There is widespread speculation prolific Atletico Madrid striker Radamel Falcao will be the next star to join Claudio Ranieri's squad as the big-spending club plot an immediate assault on the Ligue 1 title on their return from the second tier.
According to reports in Spain, Falcao was due in Monaco today for negotiations ahead of what could be £50million move.
If the transfer does go through, then Falcao would follow in the footsteps of former Porto team-mates Moutinho and Rodriguez, with the latter relishing the chance to play alongside the 27-year-old once more.
He told Colombian newspaper El Tiempo: "Obviously (it's good). I've already played with him and now we're going to be together again, that's also going to be good.
"I'm proud to be with a friend, hopefully we can achieve great things."