World Cup winner Del Piero has been a free agent since the end of last season after leaving Juventus, the only club he has ever played for having made over 500 appearances for the Bianconeri.
The deal to take him to Sydney is reportedly the most lucrative in A-League history.
"This is huge for Sydney FC, huge for the A-League and huge for Australian football," Sydney chairman Scott Barlow said.
"We feel honoured that Alessandro has decided to play for Sydney FC and we share his excitement that a move to Sydney FC will create a lasting legacy for football in this country.
"I want to thank (chief executive) Tony Pignata and (agent) Lou Sticca for the outstanding work over the last few days in progressing discussions with Alessandro and look forward to Tony finalising the contract in Italy over the coming days."