Williams had been suspended from the National Football League for one year earlier this year.
Reports said the suspension came about after he failed a drug test for the fourth time in his NFL career. Williams, 29, also was suspended for reportedly using a banned substance that was not marijuana.
"We all know Ricky Williams is special on the field, but what I've learned in the last couple of days is that Ricky Williams is more special off the field," said Toronto president Keith Pelley at a news conference. "Ricky has made mistakes, but he will be the first to tell you he has learned from those mistakes."
When he returned in the 2005 season after retiring in July 2004, he rushed for 743 yards and six touchdowns on 168 carries.