The Major League Soccer club announced Thursday it has reached agreement with the 36-year-old central defender, considered by some to be among the best at his position of all time.
The 2006 World Cup winner with Italy will officially be added to the roster when he receives his international transfer certificate.
Financial terms of the deal were not released, but Nesta will not have the status of Designated Player, or one who earns more than the maximum allowed under the league's salary cap.
''I'm very happy to be here,'' Nesta said in a statement. ''Despite some offers to continue my career in Europe, I was looking for a new challenge and wanted to play in MLS.
''Upon visiting my friend Marco (Di Vaio) to see him play his first game with Montreal, I met great people in this club. I really liked what I saw and I was convinced Montreal was where I wanted to be.''
Di Vaio, a forward who was once Nesta's teammate at Lazio, made his Impact debut last week against Toronto FC.
Coach Jesse Marsch told reporters it would take two or three weeks for Nesta to be match-ready. He should be set to go about the same time another veteran of Italy's Serie A, central defender Matteo Ferrari, returns from a thigh injury.
They also have striker Bernardo Corradi, whose season ended two weeks ago with a knee injury. Injured Colombian defender Nelson Rivas also played in Serie-A.
The Impact got first crack at signing Nesta from the New York Red Bulls in exchange for allocation money.
The lanky Rome native, who will wear No. 14, drew a crowd of fans taking pictures with their phones as he watched the Impact's 3-1 loss to Kansas City on Wednesday night from a corporate box with team management.
''For a player who won the World Cup and played at the highest level for 20 years, he was extremely humble and it was easy to come to an agreement with him,'' said Impact president Joey Saputo. ''He already feels a part of the team.''
Nesta earned 78 caps with Italy, including three World Cup tournaments.
His 20-year career in Italy's top league was split evenly between Lazio and AC Milan, who he joined in 2002 on a multi-million dollar transfer. He played 417 career league games, 101 in the Champions League, 17 UEFA Cup/Europa matches and 17 in the Coppa Italia.
He was named to the UEFA team of the year in 2002, 2003, 2004 and 2007 and was named Serie A defender of the year in 2000, 2001, 2002, and 2003.
He played 17 games in the 2011-2012 season and scored one goal. He was also in seven UEFA Champions League games, including the quarter-finals against Barcelona.
''It's exciting not only for the team, but also for the club to have a player of his pedigree, a world champion in 2006 and one of the top defenders in the world,'' said Impact sporting director Nick De Santis. ''He will be a great mentor to our young players.''
Nesta was named a Knight in the Italian Order of Merit in 2000 and an Officer in the Italian Order of Merit in 2006.