Diaby, who joined Villa a year ago from Bayer Leverkusen for a reported fee of 52 million pounds made 54 appearances in the 2023-24 season, registering 10 goals and nine assists and helping the club qualify for the Champions League.
The transfer fee paid by Al Ittihad for Diaby was not specified.
The former Paris St Germain player joins fellow France internationals Karim Benzema and Ngolo Kante at the Jeddah-based club, who hired Frenchman Laurent Blanc as head coach earlier this month.
Saudi Arabian clubs, who have signed some of the world's top players over the last couple of seasons including Cristiano Ronaldo and Neymar, are among the five biggest spenders in the international transfer market, according to global soccer governing body FIFA, splashing $970 million in 2023.
Nine-times Saudi league winners Al-Ittihad fell short of a place in continental competition after finishing fifth last season, and also lost the Saudi Super Cup final to Al Hilal.
"Our sports committee identified the need to strengthen the winger position," Al Ittihad CEO Domingos Oliveira said in a statement. "We are confident that Moussa Diaby is one of the top players who stand out globally in this role."
Al-Ittihad begin their league campaign at Al Kholood on August 24.
