The Croatian has been unveiled as Chelsea's fourth signing this summer following the arrival of goalkeeper Kepa Arrizabalaga.
There is no clause in the deal to make it a permanent transfer, but Kovacic will be desperate to perform at the Stamford Bridge.
The 24-year-old had grown frustrated with lack of playing time at Real and was keen to leave the club.
Chelsea have wasted no time in showing off their latest addition, with Kovacic snapped around Stamford Bridge with the new home kit for 2018/19.
Kovacic told the Chelsea's official website:
"I am really happy and excited to be here at Chelsea. It is an amazing feeling.
'I will try to do my best for this club. It is a new league for me, the beginning is always tough but I am sure the coach and my new team-mates will help me and I am looking forward to a great season.'
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