Financial terms of the deal were not announced by the team, but multiple media outlets reported previously the contract is worth $13 million. The seven-time All-Star is expected to serve as the Yankees' designated hitter and also fill in at first base.
"I would have liked to have gotten a two-year deal or more; I want to play three or four more years," Holliday told the New York Daily News on Wednesday. "I'll take the one-year deal, hopefully go out and play really well and see what happens."
Holiday, who turns 37 next month, missed seven weeks last season with a fractured thumb. He hit .246 with 20 homers and 62 RBIs in 110 games.
Holliday, who spent the last seven seasons in St. Louis, is a career .303 hitter with 295 homers and 1,153 RBIs in 13 seasons.
A 1998 seventh-round draft pick of the Rockies, Holliday spent five seasons in Colorado before he was traded to the Oakland A's in a November 2008 deal.
In 2007, Holliday won the National League batting title with a .340 average, and he led the league with 216 hits, 386 total bases, 50 doubles and 92 extra-base hits. He finished as runner-up in NL MVP voting behind the Philadelphia Phillies' Jimmy Rollins.
Holliday signed a seven-year, $120 million free agent deal with St. Louis in January 2010. The Cardinals declined his $17 million option for 2018 last month.