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The contract will pay Balfour $12 million over the next two seasons, a baseball source confirmed to ESPN.com.
The deal comes a month after a proposed two-year, $15 million agreement between Balfour and the Baltimore Orioles fell through after the O's objected to the results of Balfour's physical exam.
Balfour, a 36-year-old Australia native, went 1-3 with a 2.59 ERA and 38 saves last season in Oakland and made the American League All-Star team. Balfour pitched previously in Tampa Bay from 2007-10.
He's a career 28-17 with 72 saves over 10 seasons with Minnesota, Tampa Bay, Milwaukee and Oakland.
Barring a spring training surprise, Balfour will succeed Fernando Rodney as Tampa Bay's closer this season. He joins a strong Rays bullpen contingent that also includes Joel Peralta, Jake McGee, Heath Bell and Juan Carlos Oviedo.