Morata joined The Blues in 2017 for a then club-record £60m deal as a direct replacement for Diego Costa as the club's leading number nine.
However, his stay has been marred by inconsistent performances, while current manager Maurizio Sarri recently admitted the former Real Madrid striker is 'mentally fragile'.
Sarri's recent signing of Gonzalo Higuain effectively ended his stay after losing his place in the starting XI to Eden Hazard as a false nine.
Speaking to Atletico's website shortly after the return to his boyhood club, Morata, who scored 24 goals in 72 appearances during his time at Stamford Bridge expressed his excitement over his move to LaLiga.
"I feel very happy, I am very happy and very proud to be here, I can not wait to train, be with my teammates and to play."
— Atlético de Madrid (@atletienglish) January 28, 2019
Meanwhile, former Nigeria international Victor Moses also agreed an 18-month loan deal after being restricted to a peripheral under Sarri.
The 28-year-old has joined Turkish Super Lig giants Fenerbache after featuring just five times for the club, with his only start coming in September's EFL Cup win at Liverpool.
Overall, the two latest exits mark the 42nd loanees away from the club, which includes the like of Baba Rahman, Kurt Zouma, Tiémoué Bakayoko, Kylian Hazard, Kenedy, Mason Mount, Charly Musonda, Mario Pašalic, Tammy Abraham to name but a few.