The 34-year-old holding midfielder, who can also play in defence, spent the last two seasons with Sporting Kansas City before being waived in November.
"It's important that Toronto FC becomes a more difficult team to play against this year," Toronto president and GM Kevin Payne said in a statement Tuesday. "Julio Cesar will be an important part of the backbone of our team in the middle of the field.
"He’s a tough experienced, committed player who was a big part of Sporting Kansas City's success over the past two years, and we're very pleased he will be a part of TFC this season."
Cesar, who played 27 games for Kansas City in each of the last two seasons, made a hefty US$255,750 in 2012.
Kansas City had the league's stingiest defence last season, yielding just 27 goals. Toronto was worst in MLS with 62 goals conceded.
Cesar signed with C.D. Marathon in Honduras before moving to Spain's Real Valladolid at 17 and then Real Madrid.
He went on play for Italy's AC Milan, Portugal's Benfica, Austria Vienna, Valladolid (again), England's Bolton Wanderers, Mexico's Tigres, Greece's Olympiacos, Romania's FC Dinamo Bucuresti, Turkey's Gaziantepspor and Portugal's Maritimo Funchal.