In a corresponding move, the Colts waived running back Brandon Radcliff.
Michael, 26, will join a Colts backfield that already features veterans Frank Gore, Robert Turbin, Josh Ferguson and rookie Marlon Mack. Gore and Turbin are projected to be the team's top two running backs next season.
New general manager Chris Ballard has put a premium on adding as much depth and competition to the roster as possible as the Colts try to end their two-year absence from the playoffs. He has also said he plans to add players and make adjustments to the roster throughout the year, which is why the Michael signing shouldn't be surprising.
The Green Bay Packers released Michael on May 1 after the team selected three running backs in the NFL draft. Michael was claimed off waivers by the Packers last season and then re-signed in March on a one-year, $800,000 deal. However, only $20,000 of Michael's contract was guaranteed.
Michael played in nine games, including the playoffs, last season for the Packers. He rushed 31 times for 114 yards and one touchdown in six regular-season games and added 58 yards on 16 carries in the three playoff games.
Before being waived by the Seattle Seahawks last season, Michael rushed for 469 yards and six touchdowns on 117 carries. He also had 20 receptions for 96 yards and a touchdown. Seattle selected Michael in the second round (62nd overall) of the 2013 draft.