The Texas Rangers have agreed to terms year contract. The deal also includes a team option for 2014.
Nathan, who turns 37 on Tuesday, became a free agent when the Minnesota Twins declined a club option last month.
The signing means former closer Neftali Feliz will move to the starting rotation in 2012.
Nathan returned this past season after Tommy John surgery wiped out his 2010 campaign. The right-hander made 48 appearances in 2011, going 2-1 with 14 saves and a 4.84 earned run average.
For his career, he has a 48-23 record with 261 saves and a 2.87 ERA in 581 games (29 starts) with San Francisco and Minnesota. Nathan had been with the Twins since 2004.
Feliz converted 72 of his 81 save opportunities the last two seasons.