The 22-year-old has put pen to paper on a five-year contract and joins Gary O'Neil's squad after scoring 16 goals in 100 appearances for Leicester since arriving from Sporting in 2023.
His arrival at Portman Road comes with Ipswich prepared to let winger Jaden Philogene leave, with the 24-year-old attracting interest from clubs in Europe.
Fatawu will link up with his new team-mates this week at Ipswich's pre-season training camp in La Manga, having represented Ghana at the World Cup earlier this summer.
The winger expressed his excitement at completing the move.
"I am proud to have signed for Ipswich Town," Fatawu said. "The ambition the club has is very exciting and I'm looking forward to being a part of that as we prepare for the Premier League season. After speaking to the manager, I know what the expectation is and I'm looking forward to meeting my teammates and starting work.
"I have played against Ipswich a few times during my time in England and I know how passionate the supporters are for the club, so I'm excited to play for them and show them what I can do."
O'Neil was equally pleased to bring in a player he believes can add a new dimension to his attacking options. "Abdul is a young player who has already gained good experience in the game and we're excited to have him with us," the Ipswich boss said.
"He has strong physical and technical attributes, is comfortable on the ball and can test the opposition in one-on-one situations, so will provide us with good options within the squad.
"Having represented his country at the World Cup this summer, I know he is now looking forward to getting to work ahead of the Premier League season."
Fatawu becomes Ipswich's latest addition of a busy summer window as the club continues to strengthen ahead of their return to the top flight following last season's promotion. His signing follows interest from a number of clubs across the Premier League and Europe, with Ipswich moving decisively to secure his signature after Leicester's relegation from the Championship to League One left the Foxes needing to raise funds.
For O'Neil, adding a direct, one-on-one threat out wide gives his side another attacking option as they prepare for the step up in quality that Premier League football will demand.