Financial terms were not disclosed.
Urbina, 28, was third in the American League in saves last season, converting 40 of 46 chances for the Boston Red Sox. He was 1-6 with a 3.00 ERA in 61 games and held opposing hitters to a .202 average to rank sixth in the AL.
Righthanded hitters batted just .143 against Urbina, who recorded 10 saves in September while allowing just five hits in 13 innings.
"Ugueth Urbina has a quality arm and has been very successful in late-inning situations throughout his career," Rangers General Manager John Hart said. "A young veteran at the age of 28, we also feel that he will be a positive influence on the development of Francisco Cordero and our other young relievers. This is a major piece in the improvement of the ballclub in 2003."
Last year, an injury to Jeff Zimmerman forced former manager Jerry Narron to use a committee of closers. Hideki Irabu led Texas with 16 saves and Cordero recorded 10, but Texas blew 30 of 63 chances.
"Our bullpen was a major weakness last season and the signing of Ugueth Urbina addresses that need," Rangers owner Tom Hicks said. "He is an outstanding pitcher who also demonstrated a real desire to be a Texas Ranger. Our baseball staff deserves a lot of credit for getting this done."
Urbina spent his first 6 1/2 seasons with the Montreal Expos before he was traded to Boston in 2001. He was the National League Fireman of the Year in 1999 but was limited to 13 appearances the following season before undergoing surgery on his pitching elbow.
"The Rangers have a great lineup. I'm looking forward to playing with guys like Alex Rodriguez, Rafael Palmeiro and Juan Gonzalez," Urbina said from his home in Venezuela. "My goal is to help the Rangers turn things around in 2003."