The 23-year-old has suffered a number of injuries over the past three seasons with the Citizens and spent all of last season on the sidelines.
The move reunites Johnson with Foxes boss Sven-Goran Eriksson, who managed him during his stint at the Manchester club.
"Michael was a great talent when I worked with him at Manchester City," Eriksson told the club's official website. "He is a mobile midfielder, who can run, pass, shoot and tackle.
"His talent should have seen that he became a regular for England, but injuries have prevented that, which is a shame for him.
"However, I am convinced that Michael will be an asset for us this season and will put his injuries behind him. He has great character and I know that he is going to work hard for us and play well."
Johnson made only 37 appearances for City in five years at the club, 25 of which came under Eriksson.