The 6-foot-2 guard will play for Tel Aviv as long as the NBA lockout continues, the team said in a statement.
Farmar, who is Jewish, won two NBA titles with the Los Angeles Lakers before moving to the Nets in 2010.
Fellow Nets stars Deron Williams and Sasha Vujacic have signed to play for Turkish teams, Williams for Besiktas and Vujacic for Anadolu Efes. Besiktas also has claimed to have held talks with Kobe Bryant's representatives.
ESPN.com's Marc Stein reported Tuesday that Farmar also had interest from Israeli team Maccabi Haifa.
At Tel Aviv, Farmar will play alongside former Duke guard Jon Scheyer, who signed this summer. Both will be eligible to play as Israelis, not counting against the four foreign players per team limit in the Israeli league.
"Coach David Blatt spoke with Farmar several times, and was impressed by his intense desire to play for Maccabi Tel Aviv in front of the Israeli public and to contribute as much as possible," the team said. "Thanks to his deep Jewish roots and his great basketball skills, Maccabi Electra Tel Aviv decided to accept him into the team with open arms."
Maccabi Tel Aviv was the runner-up in the Euroleague last season.
Information from The Associated Press was used in this report.