The midfielder has joined from Club Nacional for an initial fee of £2.6m which could rise to £4.8m.
Arismendi follows former Middlesbrough duo Robert Huth and Tuncay Sanli in heading to the Britannia Stadium.
The 21-year-old told the club's official website: "It's a dream come true to come and play in the Premier League.
"In my opinion it is the best league in the world and having watched it on television for many years, I had long held the ambition of coming to play here one day.
"I was impressed with the welcome that I received from the club and I also like the ambitious plans that the manager has for the club in the long term."
Potters chief executive Tony Scholes said: "This is the first time the club has signed a player directly from South America.
"Clearly, Diego will need time to settle in, but we are excited by his potential and are confident he will prove to be a great acquisition."
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