The 19-year-old has signed a five-and-a-half year contract at Stamford Bridge.
He will remain in France for the rest of the season, before joining up with his Chelsea team-mates at the end of this campaign.
Manager Jose Mourinho said Zouma is Chelsea's fourth and final signing of the January transfer window, following the captures of midfielder Nemanja Matic from Benfica, Mohamed Salah from Basle and Bertrand Traore, who immediately was sent on loan to Vitesse Arnhem.
"Job done," Mourinho said.
"The last one in the transfer window. In almost every position we have the present and also the future."
Chelsea moved for Zouma now as other sides were lining up to recruit the defender, who could spend next season on loan or at Stamford Bridge.
"If we don't do it now, probably we can't do it in the summer because other clubs were also very strong on him," Mourinho added.
"So we did it, now he stays at St Etienne, pre-season he will join us.
"We will see if it is to stay or if it is to go on loan."
Mourinho has spoken of building a team for the next decade and Zouma's acquisition fits with his brief of recruiting young players full of potential.
Mourinho added: "He's another young player in the profile of some Chelsea signed in the couple of last years.
"We liked the profile, we think he's very much adapted to the Premier League.
"He is a young player for a position where we also need the future.
"He's a player with big potential, physically ready. One thing is to be physically ready, another thing is to be tactically ready. Well done Chelsea."
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