The deal was announced by the Royals just before the 3 p.m. CT non-waiver trading deadline.
Davies, 23, had a 4-8 record and a 5.76 ERA this season for the Braves. He made 17 starts before being demoted to Triple-A Richmond, where he made two starts and was 0-1 with a 4.50 ERA.
General manager Dayton Moore said Davies will join the Royals immediately and be placed in the rotation.
Manager Buddy Bell said that rookie Joakim Soria, who filled in for Dotel earlier this season, will become the closer. Zack Greinke, who has been a hard-throwing middle man, will appear more often as a setup man.
Dotel, 33, had 11 saves in 14 opportunities for the Royals. He began the season on the disabled list with a left oblique strain but was activated on May 22. In 24 games, he had a 2-1 record and a 3.91 ERA.
"I kind of figured out something was going to happen. I don't know why exactly, but finally now we know, and now we'll see what's happened," Dotel said.
"So now I'm heading to Atlanta, and I just want to keep doing what I'm supposed to do and keep doing what I've been doing over here. I want to do my best for them and, at the same time, I want to thank the Royals for the time they supported me and gave me the chance to play the game and show everybody that I'm back. I'm ready again."
Dotel had been a central figure in trade rumors, with strong interest also reported from the Seattle Mariners and Los Angeles Dodgers.
The Royals have been looking for a way to beef up their rotation and hope that Davies could be an answer. Prior to this season, he made 28 starts for the Braves and had a 10-13 record and 6.38 ERA.
"He's a young pitcher who's trying to establish himself," Moore said. "I don't pay much attention to young pitchers' statistics. If you did, John Smoltz and Tommy Glavine never would have gotten off the ground."
The Royals have gotten consistent starting pitching from Gil Meche and Brian Bannister, but Odalis Perez and Jorge De La Rosa have been up and down. The Royals also have been trying to fill the No. 5 spot. With Scott Elarton's release, the spot was taken by Leo Nunez, who fired six shutout innings against Texas on Sunday.
Davies broke in with the Braves in 2005 and had a 7-6 record as a rookie.
Moore noted that Davies, who has pitched in 52 Major League games, 45 of them starts, has considerable experience for his age, although he has exhibited some inconsistencies.
Dotel was coming up on free agency this winter, which played a factor in the Royals' willingness to trade him. Davies will be under the Royals' control through 2011.
After having reconstructive elbow surgery in 2005, Dotel pitched briefly for the New York Yankees last year. Then he signed a $5 million contract as a free agent with the Royals and launched a drive to prove he was sound again.
"I feel good, everything was there, but then you need to show yourself that you are ready and completely back. So that's what I was trying to figure out, and finally I did," Dotel said.
Dotel said he'd miss Kansas City.
"When you've been somewhere for seven months -- you know the city, you know everybody, you know everything -- it's kind of hard for you to deal with that," Dotel said. "But you've got to understand this is a business. I've been through that before, so it won't be the first, it won't be the last."
He's not certain what his role with the Braves will be, but he's got a chance to wind up in postseason play.
"Yeah, that's one of the reasons they probably did the trade, and that's the reason I'm going over there, and I'll do my best. I like it," Dotel said.
Moore's pre-deadline pursuit initially concentrated on acquiring young position players, especially those with power, but in the end he went for pitching. The deal was made with his old mentor with the Braves, general manager John Schuerholz.
"Kyle's the guy that we wanted," Moore said, "and John wanted Octavio, and that's what we did."
Dick Kaegel is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.