The 29-year-old, who last played for France in June 2010, has a two-year contract with an option for another year, Monaco said on their website.
Toulalan joined Malaga from Olympique Lyonnais in 2011 and although his season was disrupted by injury, he made an important contribution to the Qatar-owned club's run to the Champions League last eight last term.
"We are very pleased about the arrival of Jeremy," Monaco sporting director Vadim Vasilyev said.
"His qualities and his European and international experience will be a significant asset for the team next season."
Bankrolled by Russian billionaire Dmitry Rybolovlev, Monaco have been active in the transfer market since winning promotion at the end of last season.
Their highest-profile signing was Colombia forward Radamel Falcao from Atletico Madrid for a fee reported to be more than 50 million euros (£43 million).
Spanish media reported that Monaco had paid Malaga 5 million euros (£4.3 million) for Toulalan with a possible 3 million (£2.6 million) more in variables.
- Sports & Recreation
- Olympique Lyonnais