The contract includes at least $33 million guaranteed. In addition, the money in the deal could grow to $57.5 million if Clady is named an All-Pro twice, a league source told ESPN NFL Insider Adam Schefter.
Clady was facing a Monday deadline for franchise players to accept long-term deals. Had he not signed by Monday, he would have played under a one-year, $9.823 million deal because of the franchise tag.
Clady was the lone player among the eight to receive franchise tags this offseason to agree to a long-term contract before Monday's deadline.
Last summer, he rejected a five-year, $50 million offer that included $28 million in guarantees.
"It was pretty hard to pass up $33 million guaranteed," Clady told ESPN's Josina Anderson on Sunday. "That is pretty solid. The structure is a lot better from last summer.
"Overall, I'm happy to be a Bronco long term. This is a big year for myself and the team. I'm excited to see the outcome. There are a lot of expectations."
Clady, 26, played through a right shoulder injury in 2012 that required offseason surgery but still allowed just one sack. He was named a First-Team All-Pro and a Pro Bowler.
Clady is expected to miss the start of training camp, which begins July 25, due to the shoulder, but he said his recovery from surgery is progressing.
"It's not a 100 percent yet, but it's getting there," he told Anderson. "The plan is to take it slow during the beginning of camp. It will be good to go all the way by the regular season."
The Boise State product has started every game in his five years with the Broncos. He's been named an All-Pro and a Pro Bowler three times.
If he returns to full health, it will resolve one of Denver's many issues on the offensive line.
Left guard Zane Beadles was the only starting offensive lineman to come out of last season unscathed. Orlando Franklin (toe, shoulder), Chris Kuper (ankle) and J.D. Walton (knee) also needed operations, and of the three, only Franklin was at full health during team minicamps this spring.
The Broncos signed Dan Koppen to fill in at center for Walton, who isn't expected back until midseason. Their biggest free-agency signing outside of Wes Welker was right guard Louis Vasquez. If Kuper recovers from his second surgery in as many years, he'll likely compete for a backup spot.
Information from ESPN NFL Insider Adam Schefter, ESPN's Josina Anderson and The Associated Press was used in this report.