Favalli, who is in Italy's squad for Euro 2004, leaves Lazio after 12 years at the Stadio Olimpico.
The 32-year-old has signed on a free transfer after seeing out his contract at Lazio.
Favalli has penned a two-year deal with Inter as the club look to bolster their squad for next season.
The left back could be joined at Inter by Real Madrid midfielder Esteban Cambiasso.
Cambiasso has been linked with Inter for some time with the player lined-up as part of the deal which saw Ronaldo leave Inter for Real Madrid.
The Argentine initially refused to join Inter last year, but it now seems likely he will move to Italy on a free transfer later this summer.
Meanwhile, Inter are being linked with a move for Porto defender Ricardo Carvalho.
Carvahlho has impressed Inter officials after helping Porto win this season's Champions League and they are keen to bring him to Italy.
Porto would like to keep the no nonsence defender, but fear they could lose the player after Jose Mourinho leaves for Chelsea.
Inter could face competition for Carvahlo as Mourinho is a big fan of the player and could consider a move to bring him to Stamford Bridge.
