The deal for the Argentine surpasses the £100m Manchester City paid for Jack Grealish from Aston Villa 18 months ago.
The 22-year-old, who only joined Benfica last summer for around £10m, has signed an eight-and-a-half-year deal at Stamford Bridge to keep him at the club until the summer of 2031.
Chelsea had been in talks to sign the World Cup winner throughout January, but Benfica had refused to do business unless the Blues paid his €120m release clause.
But Chelsea agreed a deal of €121m at 9.15pm on Deadline Day after 12 hours of talks led by Chelsea’s co-owner Behdad Eghbali from London.
The Blues will pay a first instalment of £30m with the rest of the fee paid in five further instalments.
Fernandez was left out of Benfica’s squad for their game against Arouca on Tuesday night, with the 22-year-old undergoing a medical in Portugal ahead of his switch to Stamford Bridge which makes him the eighth signing of the January window
According to Portuguese broadcaster SIC, Fernandez will fly to the UK on Wednesday morning, with a private jet scheduled to leave Lisbon airport at 10.20am.