Financial terms were not disclosed.
Yan, 27, was the closer for the Tampa Bay Devil Rays for much of the last two seasons. In 2002, he posted a 7-8 mark, converted 19 of 27 save opportunities and registered a 4.30 ERA. His mid-90's fastball was turned around for 10 home runs in just 69 innings.
Yan owns Devil Rays franchise records with 266 appearances and 351 strikeouts.
"This signing adds even greater depth to our bullpen," Rangers General Manager John Hart said. "The addition of Esteban Yan is, in some ways, like adding a third closer, but he is also a guy who can be used earlier in a game.
"We think he will be a pitcher who can pitch on consecutive days and give us multiple innings."
After spending his first two seasons with the Baltimore Orioles, Yan was acquired by the Devil Rays in the 1998 expansion draft.
Yan has posted a 26-31 career mark with 42 saves. The Dominican Republic native has allowed 480 hits in 437 2/3 innings with a career ERA of 5.26.
The Rangers, who had almost as many blown saves as saves last season, also signed All-Star closer Ugueth Urbina to a one-year contract on Sunday.