The French-born ex-AS Monaco left-back, 20, has signed a three-and-a-half-year deal, with the option of an extra year.
He becomes the second attacking full-back to join Blues in as many days after right-sided player Emilio Nsue's move from Middlesbrough on Wednesday.
"He is very highly rated in Italy and one we have kept an eye on," Blues boss Gianfranco Zola told BBC WM.
"Juventus and Torino are following him, so he is a valuable player. Everyone speaks so highly of him.
"I am sure we can do something with him that might make him a complete player. He is one of those that maybe in a few years we are selling to a big club. He has the potential to reach the top."
Keita, who is Blues' fourth signing of the January window following the arrivals of Lukas Jutkiewicz, Craig Gardner and Nsue. made 67 league appearances for Virtus, who he joined in 2014.
Find all the latest football transfers on our dedicated page or visit our Premier League tracker here.
Birmingham City have signed Cheick Keita from Italian Serie B outfit Virtus Entella for an undisclosed fee.