Freeney's contract is for two years and has a base value of $8.75 million, league sources told ESPN's Ed Werder. In 2013, he will make $5.75 million, including a $3.25 million signing bonus and $1.5 million in base salary, the sources said. The deal includes an estimated $4.5 million incentive package over the two years.
Chargers coach Mike McCoy called Freeney's addition a "great signing for us."
"Dwight will help us in a lot of ways," McCoy told Werder in a phone interview Saturday. "He will help us on the practice field, in the locker room and in the games. He's one of the greatest pass-rushers in the NFL so, in that regard alone, the name Freeney speaks for itself."
Freeney, who has 107.5 career sacks, became a priority for the Chargers when former first-round pick Melvin Ingram suffered a season-ending knee injury during organized team activities this week that will require surgery.
"I'm excited to start this new chapter with some good people with great potential to do some great things," Freeney, a seven-time Pro Bowler, wrote in a text to Werder.
The Chargers use a 3-4 base defense and the 33-year-old Freeney was less effective in that alignment in his final season with the Indianapolis Colts, where he moved to outside linebacker.
"He fits what we are going to do with our defense," McCoy said Saturday. "I think his role will be defined as we go forward, and he will help define his role."
Freeney, known for his speed off the edge, had five sacks and 12 tackles in 2012, continuing a steady decline over the past few seasons. In 2011, he had 19 tackles and 8.5 sacks, which was down from 25 tackles and 10 sacks in 2010. And that was down from 2009, when Freeney had 31 tackles and 13.5 sacks.
Peyton Manning, Freeney's former teammate with the Colts, tried to lure the pass rusher to Denver. But now he will get a chance to disrupt Manning, who led the Broncos to the AFC West title last season.
Information from ESPN senior NFL analyst Chris Mortensen and The Associated Press was used in this report.