The trade was officially announced by the Broncos on Sunday.
Clady arrived at the Jets' complex for a physical Friday and agreed to a restructured contract with the Jets on Saturday, sources said. It's a one-year deal worth $6 million in base salary, with $3 million of that guaranteed, and it could increase to $7.5 million if he reaches incentives in the contract.
The reworked deal between the Jets and Clady also has an additional option year for a minimum of $10 million that could escalate to $13 million based on playing time and includes a $2.5 million February bonus. If the Jets decline to pick up that option after this season, Clady will become a free agent.
Clady had two years and $19.5 million remaining on his previous contract with Denver, which he signed in 2013. None of that money was guaranteed.
"Ryan was a great Bronco who made a tremendous impact on our team during his eight seasons in Denver," executive vice president/general manager John Elway said in a statement. "In addition to becoming a Pro Bowl player, he was such a positive presence in our locker room and community. Our organization thanks Ryan for his many contributions and wishes him all the best in the next chapter of his NFL career."
They had targeted Clady last week after learning of Ferguson's plans. Talks began to heat up in recent days, but the two sides had to work through contractual issues.
The Jets have close to $10 million in cap room after Ferguson's retirement, some of which will be used for Clady.
For 10 years, Ferguson manned left tackle for the Jets and never missed a game. He was one of the few constants for a franchise often in flux.
Clady, 29, is three years younger than Ferguson, but he is injury prone. He has missed 30 of the past 48 games because of foot and knee injuries. Clady tore his ACL on May 28 in offseason workouts, an injury that forced him to watch the Broncos' entire Super Bowl season from the sideline. He suffered a severe Lisfranc injury in Week 3 of the 2013 season and was placed on season-ending injured reserve, missing the Broncos' run to the Super Bowl that season.
When healthy, the ultra-athletic Clady (6-foot-6, 315 pounds) is one of the best pass protectors in the league. The most recent of his four Pro Bowl selections came in 2014, and he is a two-time All-Pro selection.
Clady became expendable when the Broncos acquired tackles Russell Okung and Donald Stephenson this offseason. They put Clady on the trading block in the hopes of recouping a draft pick while clearing his huge salary from the cap.
The Broncos talked with Clady's agent about restructuring his contract, but the discussions went nowhere, and the team responded by signing Okung.
ESPN Jets reporter Rich Cimini contributed to this report.