Just weeks after former teammate Jordan Bos earned City a record fee of close to A$2 million via his transfer to KVC Westerlo, the A-League Men club confirmed Celtic had surpassed that mark to secure star 21-year-old Tilio.
The fee for Tilio is understood to be more than A$2 million.
Tilio, 21, scored nine goals and notched five assists in Melbourne City's run to the premiership and grand final this season.
The tricksy winger departs City after a brilliant three-year stint that earned him selection for the Tokyo Olympics, where he scored against Argentina, his first seven Socceroos caps and a late call-up for last year's World Cup.
"It is with mixed emotions that I leave City, I know that I will miss everyone at the club, and I thank everyone who both trusted me, helped me to grow and develop into who I am as a player and a person," Tilio said in a statement.
"I'm really excited about my new challenge at Celtic, and I hope I can make everyone back home proud of me."
But he won't have any familiar Australian faces at Celtic, with Aaron Mooy retiring and Brendan Rodgers taking over from now-Tottenham boss Ange Postecoglou.
The exciting attacker had made it clear the season just gone would be his last in Australia.
"Obviously it's a goal of mine to go over to Europe and really test myself," Tilio told AAP in May.
"I've done a long-enough apprenticeship here in Australia where I feel I'm ready to go and test myself, start at the bottom again."
Tilio leaves City with three premierships, a championship, 20 goals and 19 assists across 86 appearances in all competitions.
"He arrived as a player with enormous potential, and whilst at City, he has taken great strides in developing the physical and tactical areas of his game," City football director Michael Petrillo said in a statement.
"With great character and hard work, Marco has kept improving, and has developed his game to a high level which has culminated in his Socceroo debut.
"Marco is a great young man and incredible talent for Australia and although we will miss him, both on and off the pitch, it's a special feeling to be able to help a player of his ability and ambition to play for one of the biggest clubs in world football."