Mills becomes Bolton's second summer signing following their relegation from the Premier League, after Keith Andrews joined from West Bromwich Albion.
Coyle said: "Matt is a player who has a high level of experience in the Championship. We are delighted to have made this acquisition as he adds strength and quality into the mix.
"He is 25 years old and has already captained teams at this level, so we know what he will bring to the squad, both on and off the pitch."
Mills spent one season at Leicester, whom he joined from Reading in 2009.