Earlier this week, Diony revealed on Instagram that he was on the brink of moving to City for the rest of the season and the Robins have now formally announced the deal.
Diony has failed to score in 16 appearances in Ligue 1 this season, but manager Lee Johnson is excited about the arrival of the frontman.
Johnson told the club's official website: "Loïs is a very interesting signing for us. He boasts a good record in France and I believe he has all the attributes to be a big success for us in the Championship.
Before linking up with Saint-Etienne, Diony had finished as top goalscorer at Dijon in back-to-back campaigns before switching clubs for a reported £9m.
Diony will be available to face Queens Park Rangers on Saturday, subject to international clearance.