The 23-year-old Canadian, who had been a restricted free agent, will receive a two-year contract reportedly worth $5.75 million. He and will report to the team on Wednesday after missing the first four games of the season.
"I think it was the right decision to come to an agreement," Subban told reporters. "The longer this thing held over our team, the bigger distraction it becomes."
Subban was the Canadiens leader in ice time last season as he tallied seven goals and 29 assists in 81 games.
Montreal (3-1-0) has coped well in Subban's absence since the lockout-reduced season opened earlier this month but his return will come as a welcome boost for the Canadiens.