The 25-year-old Egypt international has signed a three-year deal with the St Andrews club, with the option of a further two years.
He becomes Steve Bruce's eighth signing of the summer, following Blues' return to the Premier League.
Bruce believesGhaly has the technique, hunger and aggression to be a major asset in the fight for Premier League survival.
Bruce said: "The signing of Hossam is an excellent acquisition.
"With the loss of Stephen Clemence, he will play a vital role in the middle of the park for us this season.
"I was always very impressed with him whenever I watched him play for Spurs last season.
"He has all the credentials we are looking for in a player, he is only 25, a very talented international who still has the hunger to succeed in the Premiership," the City boss told the club official website.
"As well as being technically gifted, Hossam can also stand up to the physical side of the game so he will give us that extra edge in midfield.
"We are delighted to have him on board."
The former Al-Ahly and Feyenoord player is best known as a defensive central midfielder, although he has also figured as a right full-back.
He joined Tottenham in January last year, going on to make 34 appearances for the north London side, scoring three goals.
Monday's news brings to an end a saga which saw Ghaly claim on Sunday to have completed his move, although a Blues spokesman said the deal was "nowhere near" being finalised.
Ghaly was in Birmingham on Sunday - but Bruce's hopes of persuading Mido, to join the club appear to have faltered.
The Blues boss admitted his chances of signing the striker, currently also at Tottenham, were "less than 50-50."
If the deal for the fellow Egypt international fails to come off, Bruce may step up his interest in Middlesbrough striker Aiyegbeni Yakubu - although the player's agent Barry Silkman believes the Nigerian would be out of Birmingham's price range at more than £10million.
West Brom left-back Paul Robinson has also been repeatedly linked with a move to St Andrews but Albion boss Tony Mowbray has refused to clear up speculation his future at The Hawthorns.
The 28-year-old was left out of the Baggies' squad for the 2-0 friendly win over Hereford on Friday night.
Mowbray revealed it was a joint decision between him and Robinson not to take the defender to Edgar Street and he is monitoring the situation closely.
"We are aware there are things going around with Paul's situation," he told the club's official website.
"I have to gauge his state of mind and how he's feeling in himself and he didn't travel to Hereford.
"I talk to Paul every day about where he's at and what he's feeling and it was a joint decision. We have some important fixtures next week and we'll see if he's involved in them."