Benfica have confirmed they will pay €14m for the 31-year-old, with Bayern able to earn a further €5m in bonuses, and Palhinha has signed a contract running until the summer of 2030.
Sporting director Max Eberl explained the thinking behind letting the Portugal international leave: "We have openly discussed João Palhinha's situation with him and found a solution we can all agree on.
"He has decided to continue his career in his home country. We thank him for his time at FC Bayern and wish him all the best for the future."
Bayern signed Palhinha from Fulham in the summer of 2024 for a fee in the region of €50m, arriving with a reputation as one of the Premier League's most combative midfielders after two productive seasons in west London, but he was unable to force his way into a settled starting role in Munich, making just 25 appearances without a goal or an assist, and spent last season out on loan at Tottenham, where he scored five goals and added two assists in 33 Premier League appearances.
Palhinha, who began his career at Sporting before moving to England, framed the switch to Benfica as a return to a demanding environment.
"Expectations are very high, as we all know, when you represent Benfica," he said. "And right now I'm just another one helping out, giving everything for the club.
"I have no doubt that the whole structure, all the fans, are also longing to win titles."
The move brings Palhinha back to Portuguese football for the first time since leaving Sporting CP for Fulham in 2022. He arrives at Benfica as an experienced defensive midfielder with recent top-flight pedigree in both Germany and England, giving the club a further option as they continue shaping their squad for the season ahead.