Terms of the deal were not disclosed.
The 40-year-old Testaverde will again play for Bill Parcells, who was his former coach with the Jets.
Parcells, now coaching the Cowboys, wants Testaverde to compete for the starting quarterback job with Quincy Carter and the newly acquired Drew Henson.
"I'm here for the opportunity to compete and to be a starter," Testaverde said. "Coach Parcells is about hard work. We agree on a lot of the same philosophies about winning football games."
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