Byrd, 36, revitalized his career this past season with the New York Mets and Pittsburgh Pirates. The veteran outfielder batted a combined .291 with a career-high 24 homers and 88 RBIs during the regular season, then drove in five runs in six postseason games with Pittsburgh.
"Marlon adds a significant upgrade both offensively and defensively to our outfield," said senior vice president and general manager Ruben Amaro Jr. in a statement. "He has been particularly productive against left-handed pitching, which was a serious challenge for us this past season. He is an experienced middle-of-the-order hitter who creates some balance to our lineup. With his talent and clubhouse presence, we believe Marlon will be a solid addition to our club as we address our needs and plan to contend in 2014 and beyond."
According to sources familiar with the contract, Byrd's salary will be $8 million in each of the next two years, plus a club option for $8 million in 2016.
The option would vest if he totals 1,100 plate appearances over the next two seasons and has at least 550 plate appearances in 2015; or, if he doesn't get to 1,100 total, it will vest with 600 plate appearances in 2015.
The Phillies entered the offseason with an outfield contingent of Domonic Brown, Darin Ruf and Ben Revere, who suffered a broken foot in mid-July. One of general manager Ruben Amaro's top offseason priorities was adding a power-hitting right-handed bat to the outfield mix.
Phillies outfielders ranked near the bottom of the majors in numerous offensive categories this season. They finished 23rd in on-base percentage (.313), 19th in batting average (.259) and OPS (.720), 20th in RBIs and 27th in walks drawn. The only NL outfield that drew fewer walks was that of the Chicago Cubs.
After reeling in Byrd, the Phillies will turn their attention to resolving their catching situation. Sources told ESPN that Philadelphia has shown serious interest in free-agent catcher A.J. Pierzynski, who is the Phillies' top alternative if they can't reach an agreement with longtime catcher Carlos Ruiz.
Byrd played in the Mexican League last winter, trying to get back on the radar of major league teams. He hit only .210 with one homer in 47 games between the Red Sox and Cubs in 2012 before serving a 50-game suspension for a positive test for Tamoxifen.
Byrd signed a minor league contract with the Mets in the offseason and emerged as the team's starting right fielder before being traded to the Pirates on Aug. 27. He had an outstanding stretch run with Pittsburgh, batting .318 with 17 RBIs in 30 games and helping the Pirates clinch their first postseason berth since 1992.
A 12-year veteran, Byrd started his career in Philadelphia, where he played parts of four seasons. He is a .280 hitter in 1,250 career games with the Phillies, Pirates, Mets, Red Sox, Cubs, Washington Nationals and Rangers.
ESPN.com's Jayson Stark and Jerry Crasnick contributed to this report.