Cleveland and Toronto announced the trade on Friday. The three-time All-Star will be active for the Tribe when they take on the Tampa Bay Rays at 7:10 p.m. on Saturday in Cleveland.
The Blue Jays are receiving a player to be named later and also sending $2.7 million to the Indians in the swap.
Donaldson, 32, hit .234 with five home runs and 16 RBIs in 36 games this season for Toronto. The 2015 American League MVP owns a career batting average of .275 with 179 home runs in eight seasons. Donaldson was a first round pick by the Chicago Cubs in the 2007 MLB June Amateur Draft. He was traded to the Oakland Athletics in 2008 in a six-player deal involving Rich Harden.
The Athletics traded Donaldson to the Blue Jays in 2014. He hit .297, with 41 home runs and 123 RBIs in his first season with the club, winning MVP honors.
Donaldson has a $23 million salary this season and hits free agency in 2019. The Indians are responsible for $1 million of Donaldson's 2018 salary.
The Indians transferred center fielder Leonys Martin to the 60-day disabled list in order to make room for Donaldson on their 40-man roster.
Donaldson is still rehabbing a left calf injury and hasn't played since May 28.
Indians designated hitter Edwin Encarnacion was teammates with Donaldson in 2015 and 2016 with the Blue Jays.
"He's a great player, man. He's a great player," Encarnacion told reporters Friday. "Everybody's going to be excited to see him here. He's a great guy. He's a great guy."