Pettitte can make an additional $6.5 million on performance bonuses and bonuses based on time on the active roster. Late last year, New York had offered a deal that would have guaranteed Pettitte $10 million, down from the $16 million he earned last year.
He joins a starting rotation that already includes CC Sabathia, A.J. Burnett, Chien-Ming Wang and Joba Chamberlain. The deal raised the Yankees' projected opening-day payroll to $196.8 million for 17 players with agreements.
Pettitte pitched for the Yankees from 1995-2003, helping them win four World Series titles, then spent three seasons with his hometown Houston Astros. He returned to the Yankees in 2007 and was 14-14 with a 4.54 ERA last season, his highest ERA since 1999.
Pitching with a sore shoulder, he was 2-7 with a 6.23 ERA in his final 11 starts and missed his last turn of the season.