Chelsea have been banned from buying players in the next two transfer windows.
Fifa made the announcement over breached rules in relation to youth players. Chelsea has been fined £460,000, while the Football Association (FA) has been fined £390,000.
The ban does not prevent the release of players and will not apply to Chelsea's women's and futsal teams.
It comes following a Fifa investigation into the Blues' signing of foreign under-18 players, including former striker Bertrand Traore.
The Premier League club have been given three days to appeal against the world governing body's decision.