The Switzerland international has signed a three-year contract with the club.
Shaqiri in his Liverpool stint won the Premier League, Champions League, FIFA Club World Cup and UEFA Super Cup, having scored eight goals in his 63 appearances under Jurgen Klopp.
The former Bayern Munich winger was part of the squad that ended Liverpool’s 30-year wait for the title in the 2019-20, finishing on 99 points, 18 clear at the summit.
In what was said to be his final season with the Reds, Shaqiri registered 22 appearances at Anfield.
Shaqiri helped Switzerland to reach the quarter-finals at Euro 2020.
Liverpool signed Shaqiri from Stoke City in the summer of 2018 and became fans favourite after a hilarious display against Manchester United where he scored two goals.
"Olympique Lyonnais is pleased to have finally reached an agreement in principle with Liverpool for the transfer of the Swiss international midfielder, Xherdan Shaqiri," a statement on Lyon's website read after confirmation of the move.
Liverpool later confirmed the news, adding: "Xherdan Shaqiri has today completed a permanent transfer to Lyon after three years with Liverpool. Everybody at Liverpool FC thanks Xherdan for his contributions over the past three seasons and wishes him the very best for the rest of his career."
Liverpool have recorded two wins in two games for the season and will hope to register another win when they host Chelsea on Saturday as they chase for the Premier League title.
