The 23-year-old will move to Oakwell when the January transfer window opens.
A statement on the Swiss club's official website said: "Diego Leon, who moved to Grasshoppers Zurich at the start of the 2006-07 season, has joined Barnsley in the second highest league in the UK, the Championship.
"Leon's contract, which ran until June 2009, has been terminated after mutual agreement between the club and player. Leon will move immediately to the English club."
The midfielder came through Real Madrid's youth team ranks before moving to German Bundesliga side Arminia Bielefeld three years ago.