The one-year guaranteed deal will pay Byrd $6.9 million this season.
Byrd will rejoin the Bills as they break training camp at St. John Fisher College on Wednesday and return to their facility near Buffalo. Byrd did not report to training camp, and as an unsigned franchise player, did not face any fines by the team.
It is unclear if Byrd will be ready to play in the team's third preseason game on Saturday against the Washington Redskins.
Last season, Byrd had five interceptions, earning his first Pro Bowl nod since his he was a rookie in 2009.
Byrd, 26, had been the last of eight franchised-tagged players in the NFL not to sign his tender or agree to a long-term deal by the July 15 deadline.
The Bills will be able to negotiate a long-term deal with Byrd following this season.
Byrd will have to adjust to a new defensive scheme under first-year defensive coordinator Mike Pettine.