The deal, a source told ESPN.com, is worth $1.15 million, plus playoff bonuses.
Niedermayer, 35, has played in 16 seasons in the NHL, and won a Stanley Cup with Anaheim in 2007. Last year he had 22 points in 71 games with the New Jersey Devils.
Niedermayer became Buffalo's second free-agent signing since July 1. The Sabres also signed free-agent defenseman Jordan Leopold last week to a three-year contract.
Defenseman Mike Weber, meanwhile, signed his qualifying offer Wednesday. The Sabres' third-round pick in 2006 spent all of last season with Portland of the AHL, where he finished with a team-high plus-18 rating.
Information from ESPN.com's Pierre LeBrun and The Associated Press was used in this report.