A source said the deal was for $1.5 million.
"I thought Denver would be my last stop, but things happened and here I am," Lynch said Friday in Foxborough, according to The Associated Press.
Lynch, 36, was released by the Broncos, who wanted to re-adjust his role this season. After talking to coach Mike Shanahan, the Broncos gave him a chance to land elsewhere. The Patriots were the perfect fit.
"I've always admired the Patriot organization from afar," he said.
After talking to coach Bill Belichick and taking a physical, Lynch went back to Denver to confer with his family about accepting the Patriots' contract offer. He returned to Foxborough on Thursday and the Patriots finally officially announced the contract signing Friday.
Lynch cited the number of star players who dot the roster, but said that wasn't the determining factor in signing with New England.
"The thing that's always impressed me the most is the way they play the game," he said. I think they play it the right way. They embody the sense of team as well as anyone."
Belichick became interested in Lynch after losing safety Tank Williams for the season because of a knee injury suffered on Aug. 7 in a 16-15 preseason loss to the Baltimore Ravens. Williams was expected to be used 10-to-25 plays a game in certain defensive packages that needed a hard-hitting safety.
Whether Lynch will play Sunday night in the Patriots' second preseason game against Tampa Bay remains to be seen. He said he got through the playbook in one night and felt good after his first practice, even though he had little sleep.
Belichick said he would confer with his coaches, Lynch, and watch film of the practice Friday before deciding whether to put Lynch on the field Sunday night.
"I am excited to have John on the team," said Belichick. "He is a guy I have admired for a long time -- his playing style and his production. He has been a great player with different organizations and with nine Pro Bowls."
Sanders became a starter last season, his third with the Patriots.
"Whatever moves they plan on making it'll be what's best for the team," Sanders said after Thursday's practice. "He's just a hard, tenacious hitter. He's a big guy and he brings it every time he makes a tackle. So he's a tempo setter."
Patriots defensive coordinator Dean Pees said Williams, who spent his first four seasons with Tennessee then played for Minnesota last season, had been playing well in camp.
"I hate to lose him. You hate to lose anybody," said Pees, a 36-year coaching veteran in high school, college and the NFL. "But when you've done it for as long as we've all done it, it happens every year. So somebody else has just got to step in and take his place."
After leaving Denver, Lynch said he could sign elsewhere.
Lynch, who spent his first 11 seasons with Tampa Bay, played every snap in Denver's last three games last season, but earlier he was taken out on passing downs.
John Clayton is a senior writer for ESPN.com. The Associated Press contributed to this report.