The deal is pending a physical, which Oswalt will have on Thursday.
The club announced the acquisition of the 34-year-old free agent pitcher during Tuesday night's game with the Seattle Mariners. He is expected to join Triple-A Round Rock this weekend, and general manager Jon Daniels said Oswalt will make his first minor league start on Saturday.
"He's been throwing for quite a while now; he feels good about where he is," Rangers president Nolan Ryan said. "I think he's been away long enough that he's excited about coming to the Rangers and getting back to pitching on a regular basis."
Sources said the contract for Oswalt assumes that if he's called up by July 1, he'll make $4 million and can make another $1 million in incentives based on the number of starts he makes.
A source said Oswalt could be ready to join the Rangers' rotation by June 20, meaning he'll need at least three weeks in the minors to build up his arm strength and to get used to pitching to live hitters.
"The bottom line is I think we're better today with Roy in the fold," Daniels said. "Ownership stepped out. This wasn't something we contemplated in the budget."
Several teams had interest in Oswalt during the winter and in recent weeks. He had decided to wait until the right situation for him.
Oswalt threw for the Rangers in Mississippi on May 18 and that same night, Neftali Feliz had command problems, walked five Houston Astros and wasn't able to throw a full five innings. It was discovered shortly thereafter that he had a sprained ligament in his right elbow. Feliz isn't likely to return to the rotation before the All-Star break.
The St. Louis Cardinals, Philadelphia Phillies and Los Angeles Dodgers all were interested in Oswalt and made various offers, some exceeding that of the Rangers, sources told ESPN's Karl Ravech. However, Oswalt's relationship with Ryan when both were with the Astros organization, the proximity to Oswalt's home and that the Rangers are in contention helped the club land him.
"Once he gets some innings in, he'll fit in the rotation and pitch us deep into games," Ryan said.
Oswalt had two stints on the disabled list last season because of lower-back inflammation. Daniels said the club is familiar with Oswalt's back issues because his doctor is local and deals with the Rangers. They'll learn even more after the physical, but after seeing a long-toss session and 50 pitches in a bullpen and talking with Oswalt were convinced he's healthy and ready to go.
Daniels said the basic terms of the agreement were settled two days ago, so any interest from other teams in the past few days didn't impact the negotiations. Things weren't finalized until Tuesday.
Scott Feldman, who was on the mound while the Rangers made the announcement, has been taking Feliz's spot the past two turns. He won 17 games as a starter in 2009, but was moved to the bullpen in 2010 and then had knee surgery, missing half of 2011. Feldman likely will hold down the spot until Oswalt is ready.
Oswalt has spent his entire career in the National League, going 159-93 with a 3.21 ERA in 339 games (326 starts) for Houston (2001-10) and Philadelphia (2010-11). He has not pitched for any club since 2011, when he was 9-10 with a 3.69 ERA in 223 starts. He was on the disabled list twice last year with lower-back issues.
"I think he's motivated," Daniels said. "He's in good shape. I think he's got something to prove. The bigger thing is he wants to win. I think Nolan undersold his relationship and how important that was and I think the way our roster is constructed and a chance to win in Texas helped get him here."
Daniels did not want to speculate on what the move may mean for Feliz when he's healthy. He's been shut down for four weeks and will be re-examined at that time before he can even start a throwing program.
"We're focused on getting Neftali healthy," Daniels said. "In reality, you don't know what could happen not just with Neftali, but anyone else. You need a lot of depth and talent to win."
In eight career starts at Rangers Ballpark, Oswalt is 2-5 with a 4.78 ERA. He has lost his last five starts there, but those were against the power-packed Texas lineup that will now be playing behind him.
Oswalt last pitched against the Rangers on June 27, 2010, a night when slugger Josh Hamilton hit a homer several rows into the upper deck in right-center field way above the Texas bullpen. The drive was measured at 490 feet, the longest home run hit at Rangers Ballpark.
Hamilton, talking before the team had confirmed the deal, said Oswalt is a good pitcher that would be a good mix with the Rangers.
"He's been around a long time, he's had a good career and obviously it's still going on," Hamilton said. "I'm sure just like anybody else, he'll come into the clubhouse and fit right in just like anybody else would. We'll make sure he does. It should be exciting."
The deal with Oswalt came on the same day the Phillies and AL West rival Los Angeles Angels put their ace pitchers on the disabled list.
"It was a complete coincidence," said Daniels, adding the Rangers and Oswalt had reached an agreement on basic terms of his deal two days earlier.
The Phillies put two-time Cy Young winner Roy Halladay on the disabled list and he'll be out of the rotation for six to eight weeks because of a strained right shoulder. Angels starter Jered Weaver was put on the DL with a lower-back injury, likely forcing last season's AL Cy Young runner-up to miss at least two starts.
Information from The Associated Press was used in this report.