The 24-year-old had attracted interest from across Europe after he helped his country to the knockout stages of the World Cup earlier this summer.
QPR boss Harry Redknapp said on the club's official Twitter account: "Eduardo is a quality player
He's sharp, he's bright, and he's very lively on and off the ball.
"He can play as a number nine, he can play in behind, he can play wide, he's very versatile."
The news of the deal to loan Vargas comes a day after Leroy Fer completed his move to Loftus Road from Norwich for an undisclosed fee.
Vargas, who has also played on loan at Valencia during his time on Napoli's books, told the London club's official website: "I've come here to do as much as I can and I'm very happy to play for QPR.
"It's a very exciting league and a super-competitive league and a lot of players look forward to coming to play here in England
I'm looking forward to it.
"My biggest characteristic is one of speed
I'm always looking towards goal.
"My intention is to give 100 per cent and not let myself down and to work hard for the team."
Vargas scored five goals in 25 appearances for Valencia and has fired 15 in 32 games for Chile, most notably the winner against Spain in the World Cup group stages.
He joins countryman Mauricio Isla in west London after the 26-year-old moved to QPR last month.
Vargas is the Hoops' sixth signing of the summer following Fer, Isla, Rio Ferdinand, Jordon Mutch and Steven Caulker.
Source : PA
Source: PA