The teenage attacker joins in a free transfer from Real Madrid.
Iago will begin his stay in the Portuguese club's reserve team in the third division.
"I am very happy to sign for Sporting CP because it is a club that has already done great things and trained great players like Cristiano Ronaldo and Luís Figo," he told Sporting's website.
"I am very excited because it is a club that invests a lot in training and young people, which motivates me."
Iago has an eye on two compatriots who have a past in Sporting.
"I know that some of my compatriots have passed through here like Pedro Porro and Antonio Adán, who won many titles with Sporting CP," he added.
- I hope I can also win many trophies like them. I am a skilled player, with a good passing game and a good shot.