As the clock ticked down on deadline day it appeared a deal might not be reached but a statement from Benfica confirmed that it had been agreed shortly before 2300 GMT on Tuesday.
It said Chelsea would pay the contract release fee for Fernandez, who has signed an eight-and-a-half-year deal with the London club. It takes Chelsea's transfer spending in January alone to more than 300 million pounds.
Chelsea were yet to officially confirm the completion of the record-breaking deal when the market closed at midnight but according to Sky Sports, the paperwork had been submitted on time and before the deadline.
The club have since announced the signing on social media.
According to media reports, Chelsea will pay the fee in several instalments.
"Sport Lisboa e Benfica - Futebol, SAD informs that it has reached an agreement with Chelsea FC for the sale of all the rights of the player Enzo Fernandez, for an amount of 121,000,000 euros," a Benfica statement read.
The fee eclipses the 100 million pounds Manchester City paid Aston Villa for England midfielder Jack Grealish in 2021.
Fernandez was instrumental in Argentina's World Cup-winning campaign in Qatar, breaking into the starting lineup and playing every game, scoring one of the goals in a vital victory over Mexico in the group phase.
He capped off the tournament by bagging the Young Player Award.
Fernandez joined Benfica from Argentine side River Plate in July 2022 and has scored four goals in 29 appearances.
Benfica boss Roger Schmidt was not keen on seeing Fernandez leave but had said their hands would be tied if a club paid the player's release clause.
Fernandez is Chelsea's eighth recruit in the mid-season transfer window after the London club signed Mykhailo Mudryk, Benoit Badiashile, Noni Madueke, Andrey Santos, David Fofana and Malo Gusto while Joao Felix arrived on loan from Atletico Madrid. All of them are 23 or younger.
On Tuesday, Chelsea sold experienced midfielder Jorginho to Premier League leaders Arsenal for 12 million pounds.
Fernandez's transfer takes Chelsea's total outlay on players since last May's takeover by an investment group led by American Todd Boehly and Clearlake Capital to around 600 million pounds as they try to rebuild their squad.
Chelsea are 10th in the Premier League, 10 points adrift of a top-four spot. They next host local rivals Fulham on Friday.
