The Italy midfielder joins Spurs for an initial £92.5 million, with the remaining £7.5 million add-ons based on multiple Champions League qualifications.
The move eclipses the club's previous record transfer of £85 million for West Ham midfielder Mateus Fernandes, signed earlier this month.
Tonali, who was also coveted by Manchester City, has penned a six-year contract in north London and will reportedly earn £275,000 per week.
"I'm very happy to be here. When I arrived at the club today, it felt fantastic," Tonali said. "People said about there being four or five clubs - there was only one.
"I spoke to the head coach for close to two hours about the club, the fans, the stadium and our football. It was like magic because I knew immediately that I had to sign for Tottenham.
"I've played against Tottenham a few times and always found a great atmosphere made by great fans. I can't wait to start the season."
Tonali joined Newcastle in a £55 million move from AC Milan in July 2023, but was banned for 10 months by the Italian Football Federation (FIGC) for breaching gambling rules.
The 26-year-old returned in August 2024 and became a key part of Newcastle's midfield, which helped them end a 70-year domestic trophy drought with the EFL Cup.
Tonali, who has 32 senior caps for Italy, made 110 appearances for the Magpies.
Tonali's arrival continues a busy summer for Tottenham, who have now spent beyond £200 million in an aggressive strategy shift after narrowly avoiding relegation last season.
They have already signed defender Jan Paul van Hecke for £52 million from Brighton and added Andy Robertson, Marcos Senesi and Martin Dubravka on free transfers.
Spurs have also agreed on the sale of 19-year-old centre-back Luka Vuskovic to Brighton for a potential £50 million total.