The deal, announced at the NHL Draft meetings in St. Paul, Minn., came coupled with a trade of defenseman Robyn Regehr from the Flames to Buffalo for Chris Butler and Paul Byron, which opened up space under the salary cap for Tanguay's deal.
Next season will be the 12th in the NHL for Tanguay, 31, who compiled 22 goals and 47 assists in 79 games for the Flames last season.
He has 225 goals and 686 points in 818 career games.
"One of the things that salary cap jail has done is that we have not been able to sign our own pending (unrestricted free agents) -- all of them," Flames General Manager Jay Feaster told NHL.com. "We had to be very judicious because of the cap room situation."