The 37-year-old was released at the end of last season after 19 years at Juventus and had been linked with moves to various clubs, including English Premier League side Southampton and Scotland's Celtic.
"There's no better choice for me than Sydney," Del Piero told reporters in Turin, Italy, adding that he had received offers from teams on several continents.
"I'll do this with enthusiasm of someone who is doing something new and who wants to do it well," said Del Piero, who added that he would "live fully" his time in Australia and not "as a long vacation" from Italy.
Del Piero will play with the same Number 10 he donned at Juventus, Tony Pignata, Sydney's general manager, said in Turin.
"This signing is a major coup for Sydney FC and marks a historic day for football in this country," club chairman Scott Barlow said in a statement. "This is for all Australian football fans".
Soccer's popularity in Australia trails behind the rival football codes of rugby league and Australian Rules in the congested domestic market place.
With most of Australia's best players plying their trade abroad, the top flight A-League has suffered from lack of star quality since it was launched for the 2005/06 season.
Former Manchester United striker Dwight Yorke, England striker Robbie Fowler and Socceroos John Aloisi, Harry Kewell and Brett Emerton were among the best known players to have graced the league before Del Piero's signing.
Del Piero's arrival could not have been more timely time for the A-League.
The Football Federation of Australia (FFA)'s TV deal, which comes with the sweetener of the hugely popular Socceroo matches, expires at the end of the season and the arrival of such a high profile player can only help negotiations.
The new season begins in early October with twice champions Sydney FC taking on New Zealand's Wellington Phoenix across the Tasman Sea in their opener on October 6.
