The 25-year-old leaves the Foxes after a year, having been an almost-present fixture in Sven Goran Eriksson and Nigel Pearson's sides. Peltier joined City from Huddersfield Town and leaves after scoring once in 47 appearances in the East Midlands.
Peltier had been widely linked with a move away from the King Power Stadium in the early part of the close season and this deal with Leeds will fuel speculation over the future of Jermaine Beckford at Leicester. Both players had been rumoured to be looking towards a move to Elland Road.
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