The 28-year-old right-hander was acquired by New York from Colorado on July 28 and went 7-3 with a 2.85 ERA in 12 starts and two relief appearances. It was a startling turnaround for the former All-Star, who was 1-7 with a 4.09 ERA for the Rockies.
In addition to his salary, Chacon can earn $100,000 in performance bonuses: $25,000 each for 180, 190, 200 and 210 innings.
After making $2.35 million last year, he had asked for $4.15 million in arbitration and had been offered $3.1 million.
His agreement leaves the Yankees with a projected opening-day payroll of $195 million to $197 million, down about $10 million from their record-setting figure at the end of last season.