The Atletico star will not be returning to Stamford Bridge after signing a new contract at his current club.
Three of last season's league-winning Atletico side will be playing at Stamford Bridge next season and Tiago was heavily rumoured to become the fourth after Mourinho secured the signatures of Filipe Luis and Diego Costa, while Thibaut Courtois' loan has ended.
Tiago played under Jose Mourinho during his first spell with the Blues and rumours have linked a reunion all summer with Tiago's contract running out allowing him to leave on a free.
The 33-year-old midfielder has agreed fresh terms with the La Liga holders to keep him at the club for another two years.
A club statement said: ""The Portuguese player will continue at our club for two more seasons after the agreement he has made,
Tiago added: "The club offered me the chance to stay. I feel proud because we had an incredible season and then I thought it was the right moment to move on. I had the chance to play in different international leagues.
"I took my time to look at the different options during the summer but when it came to making the decision, I felt that only with Atletico would I be sure of not making a mistake."
"Over the weeks, a lot of false things have been written about me but that doesn't change anything, since the end of the season, I did not forget about Atletico and neither did the club forget about me."
Tiago is a Portuguese versatile midfielder who can operate as box-to-box midfielder or as a holding defensive players.
The veteran midfielder has played proffessionally in five of Europe's major leagues, including England, France, Italy, Portugal and Spain.
Most notably he has spent four years at Atletico Madridd where he guided the side to the 2013-14 La Liga, the 2012 Europa League and the 2014 Champions League final where they narrowly lost out to local rivals Real Madrid.
Tiago has 58 International caps to his name including representing Portugal at the 2004 European Championships as well as the 2006 World Cup and the 2010 World Cup.