The loan, confirmed on Manchester City's official website, includes an option to buy and sees the 20-year-old link up with Marco Silva's squad at the Estádio da Luz through the end of the campaign.
Manchester City signed the Argentine attacking midfielder from River Plate for €18.5 million in January 2024, but he has made only three senior appearances for the club, all of them from the bench.
Echeverri began last season on loan at Bayer Leverkusen, making 11 appearances in Germany before a January switch to Girona, City's sister club under the City Football Group umbrella, where he featured 17 times in La Liga, scoring once and setting up another as the Catalan side were relegated to the Segunda División.
He returned to the Etihad for pre-season and was named among the substitutes for City's 4-1 win at Crystal Palace, but with Erling Haaland, Phil Foden and a crowded attacking midfield group ahead of him under Enzo Maresca, regular first-team football remained out of reach.
Benfica have agreed to cover the full cost of his wages during the loan, according to reports, and personal terms on a contract running to 2031 are understood to have been settled in case the move is made permanent.
City had previously been linked with keeping Echeverri involved at first-team level for at least part of the new season, but with Real Betis and Sheffield United also having registered interest in taking him on loan, City opted to sanction the move to Portugal to prioritise his development.
Echeverri's contract at the Etihad runs until the summer of 2028 regardless of how the Benfica loan unfolds.
He first caught the eye during a standout Under-20 South American Championship campaign with Argentina, scoring six goals and captaining his country to the final before his switch to English football.
His senior City debut came as a second-half substitute in last season's FA Cup final defeat to Crystal Palace, and he was involved again a week later in the club's final-day trip to Fulham.
Benfica are managed by Marco Silva, and Echeverri will be tasked with helping the Portuguese giants compete domestically and in Europe this season. The move ends speculation over his immediate future, though it remains to be seen whether he settles permanently in Lisbon or eventually returns to Manchester.