The deal is for $2 million, a source confirmed to ESPN.com.
Both sides moved from their positions to make the deal happen. The Leafs had been insisting on a two-year term; Franson had wanted close to $3.5 million in salary.
Franson has missed most of training camp but signs with the regular season just around the corner as Toronto opens at Montreal on Tuesday night. The top-four blue-liner was terrific for Toronto last season, posting 29 points (4-25) in 45 games.
"Franny's back!" Toronto center Nazem Kadri wrote on his Twitter account.
The Associated Press contributed to this report.