The deal is worth $7.6 million -- he will earn $3.6 million this season and $4 million in 2011-12.
Wolski had six goals and 12 assists in the final 18 regular-season games with the Coyotes and had four goals in seven playoff games to lead Phoenix.
The 24-year-old from Poland set career highs last season with 23 goals and 42 assists in 80 games between the two teams. He has 79 goals and 132 assists in 320 career games.
Phoenix struck another deal with the Avs on Monday, sending forward Daniel Winnik to Colorado for a fourth-round pick in the 2012 NHL draft.
Winnik had four goals and 15 assists in 74 games for Phoenix last season, when he led the team's forwards with 54 blocked shots and was second on the club with 30 takeaways.
Avalanche general manager Greg Sherman lauded Winnik's size (6-foot-2, 210 pounds), speed and "ability to kill penalties," saying the forward will "fill an important role with our team next season."
Winnik was originally selected in the ninth round of the 2004 draft and has appeared in 202 career games, scoring 52 points. He played at the University of New Hampshire.
Information from ESPN.com's Pierre LeBrun and The Associated Press was used in this report.