The Twins announced the agreement Saturday.
The 27-year-old Liriano went 14-10 with a 3.62 ERA for the Twins last season and started Game 1 of their playoff series against the New York Yankees.
The season was the culmination of a long comeback from Tommy John surgery. Liriano missed all of 2007 after having the procedure, then struggled to regain his form in 2008 and 2009.
He had scoreless streaks of 23 and 21 innings last season and won a career-high eight straight decisions from July 16-Sept. 4.
Left fielder Delmon Young is the final arbitration-eligible Twin without a deal.