Gonchar spent the last five years playing for the Pittsburgh Penguins and won the Stanley Cup in 2009.
"It adds a great deal to our team -- back-end mobility, the point on the power play. That's how you win games in the league now," Senators general manager Bryan Murray said. "He was our No. 1 guy."
Gonchar's agent J.P. Barry had extensive talks with the Penguins but couldn't come to terms on a new deal. Gonchar says he is looking forward to a change of scenery.
"I'm very happy to be there because I'm going to play in Canada, which is pretty special for me," Gonchar said. "I believe Ottawa has a pretty good team. ... We played against them last year in the playoffs and it's not easy to play against that team."
The 36-year-old Gonchar is considered one of the league's top offensive defensemen. He had 11 goals and 50 points in 62 games last season.
With Anton Volchenkov allowed to leave as an unrestricted free agent and Andy Sutton also not being re-signed, Ottawa will be without two of the NHL's top shot-blocking defensemen. However, the Senators now have one of the league's premier offensive defensemen.
"From a coach's perspective, I'm very excited," Senators coach Cory Clouston said. "Bryan mentioned that we put together a list of players that we could potentially go after and [Gonchar], obviously, was on the top of our list.
"I think he adds a lot to our club. We're sad to see Anton go, but we have to turn a page," he said.
Gonchar is looking forward to joining a team that he helped eliminate from the playoffs in two of the past three playoff years.
"I played against Ottawa during last year's playoffs and I was able to see how good they are," Gonchar said. "They were close to making the next step and going far in the playoffs and I think I can help them with that.
"Also, playing in Canada is something special. Every time I've played in Canada, I always play better and I enjoy playing over there and that's another reason I wanted to sign with them," he said.
Murray said Gonchar brings skating, hands and poise that instantly make the Senators better offensively. Ottawa ranked 15th in the league with 2.68 goals per game last season.
"You need a guy who can contribute offensively and help your forwards because of the coaching and systems in the league now," he said.
The Senators were 21st in the NHL on the power play.
Gonchar's deal includes a no-trade clause. He missed 20 games because of injury last season but managed to record 11 goals and 39 assists, seventh in the league among defenseman scoring. His 30 power-play points were third-most.
Gonchar missed most of the season two years ago, but he said he has had no lingering effects from previous injuries.
The Senators also re-signed forward Jesse Winchester on Thursday to a two-year deal worth $750,000 per season.