The 24-year-old, who has spent eight years at Deepdale, has signed a two-and-a-half-year contract with a option for a further 12 months.
Head coach Lee Johnson said: "Bailey has a warrior spirit and represents a good signing for us.
"He has great Championship experience, he's tough, an Australian international - an old-fashioned stopper."
In December, Preston manager Simon Grayson said he was keen for Wright to sign a new deal at Deepdale and that the defender "owes the club a lot".
Wright was part of the Preston team which won promotion via the League One play-offs in 2014-15.
Since scoring on his Australia debut against Saudi Arabia, he has been capped 12 times and was in the squad for the 2014 World Cup in Brazil.
Wright is Bristol City's third signing of the January transfer window, with Bosnian striker Milan Djuric and German midfielder Jens Hegeler already added to the squad.
Find all the latest football transfers on our dedicated page.

It was a second day of gains following big falls earlier in the week linked to worries about the Chinese economy. Chinese markets were closed due to a public holiday.
The Dow Jones rose 23 points, or 0.1%, to close at 16,375, while the S&P 500 rose 0.1% to 1,951.
The Nasdaq fell slightly, closing down 16 points, or 0.4%, at 4,734
Non-farm payrolls figures for August are due out on Friday. They are expected to show a similar rise to the 215,000 jobs that were added in July.
US shares had made bigger gains earlier in the day after European Central Bank chief Mario Draghi hinted there might be more stimulus measures to come for the eurozone.
The chipmaker Intel was the biggest gainer, rising 1.7% the day after it unveiled its new range of processors at a technology show in Berlin.
Construction equipment maker Caterpillar, down 2.2%, was the biggest faller on the Dow Jones.
"I think the market is trying to calm down a little bit with the fear factor reducing somewhat and the data points to a growing US economy," said Peter Cardillo at Rockwell Global Capital in New York.
Bristol City have signed Australian centre-back Bailey Wright from Preston North End for an undisclosed fee.
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(Close): Wall Street shares closed slightly higher on Thursday ahead of Friday's jobs report.