Thirty-year-old Santa Cruz joined City from Blackburn in 2009 but has struggled to tie down a first-team berth with the big-spending Barclays Premier League club and returned to Rovers on loan for the second half of last season.
Prior to joining Blackburn in 2007, Santa Cruz spent seven years at German giants Bayern Munich having begun his career with Olimpia in his homeland.
A statement on the Betis website read: "Real Betis continue to strengthen their first-team squad for the coming season with only a few days to go before the end of the transfer market.
"After intensive negotiations, the club have been able to close the signing of Roque Santa Cruz, who will play the coming season on loan at Betis.
"A Paraguayan international, Santa Cruz arrives from Manchester City, one of the best teams in England in recent years."
Santa Cruz, who made his full international debut for Paraguay at the age of 17, is set to be presented by Betis tomorrow evening and will wear the number 16 shirt after becoming the newly-promoted club's eighth signing of the summer.
Betis, last season's Segunda Division champions, began their league campaign with a 1-0 away win over fellow top-flight newcomers Granada on Saturday.