Knicks president Donnie Walsh announced the move in a statement Sunday.
The 7-foot Bender enjoyed his best season in 2001-02, when he averaged career highs of 7.4 points and 3.1 rebounds in 78 games.
But injuries forced Bender to miss 172 games over the next three seasons before chronic knee pain sidelined him indefinitely in February 2006.
Bender was selected out of high school by Toronto with the fifth overall pick in the 1999 draft and was acquired by Indiana in a trade on Aug. 1, 1999. He formed a relationship with former Pacers president Walsh during their time together in Indiana.
"Jonathan has worked extremely hard in preparing himself for a return to the NBA," Walsh said in the statement. "I know him to be a young man of the highest character from my relationship with him that dates back 10 years to his rookie year and I think he will be a fine addition to our team both on and off the court."