Detroit completed the deal with the restricted free agent Tuesday just before he potentially could have gotten offers from other teams.
The 22-year-old Sheahan had nine goals and 24 points in 42 games last season for the Red Wings after playing one game for them in each of the previous two years.
Detroit drafted him No. 21 overall in 2010. He made headlines a couple years later when he pleaded guilty to drunken driving while wearing a Teletubby costume following a Halloween party. Police at the time said he had a blood-alcohol level of 0.30, well over the legal limit. Sheahan was 20 at the time of the arrest.