Mussina told MLB.com last Wednesday that he expected the deal to be completed sometime this week. Later that day, the Yankees declined a $17 million option for 2007, paying Mussina a buyout of $1.5 million instead.
Mussina, who turns 38 next month, went 15-7 with a 3.51 ERA last year, his sixth with the Yankees. Mussina is 92-53 since 2001, when he signed a six-year, $88.5 million contract with the Yankees.
Jorge Posada, who has caught Mussina since 2001, said on Friday that he was pleased to hear that his battery-mate would be wearing pinstripes next season.
"I'm really happy that he's going to be back," Posada said. "He's a perfectionist. He's a professional, and every time he goes out there, you understand that you have a chance to win."
Mussina joins Chien-Ming Wang, Randy Johnson and Carl Pavano in the Yankees' starting rotation, though Johnson and Pavano each have injury issues, making them question marks for New York. Scott Proctor may be a fallback plan for the Yankees, who are having the right-hander train this winter as though he will be a starter.
Prospects Darrell Rasner, Jeff Karstens, Humberto Sanchez and Phillip Hughes will also likely get a look during Spring Training.
The AP also reported that the Yankees have been involved in discussions with the agent for free agent first baseman Shea Hillenbrand. His agent, Dan Lozano, said several teams are interested in Hillenbrand and that discussions have not progressed with any club.
The Yankees added three players to their 40-man roster on Monday, thus protecting them from next month's Rule 5 Draft.
Left-hander Chase Wright, right-hander Jeff Kennard and outfielder Bronson Sardinha were added to the roster, bringing the total number of players to 34.
Wright, 23, was named the 2006 Florida State League Pitcher of the Year after posting a 12-3 record with a league-best 1.88 ERA in 37 games (14 starts) with Class A Tampa. His ERA ranked third among all Class A pitchers, while his 12 wins tied for second best among all Yankees Minor Leaguers.
Kennard, 25, split time between Tampa and Double-A Trenton in 2006, going 6-6 with a 2.64 ERA in a combined 41 relief appearances. He began the season with Tampa and went 3-0 with two saves and a 1.33 ERA, holding opposing hitters to a .183 batting average in 14 games before being promoted to Trenton in June. In 27 games with the Thunder, he posted a 3-6 record with one save and a 3.29 ERA.
Sardinha, 23, posted a combined .266 batting average in 138 games with Trenton and Triple-A Columbus in 2006. He batted .254 with 10 home runs and 40 RBIs in 86 games with Trenton before being promoted to Columbus in July. In 52 games with the Clippers, he hit .286 with a team-best .492 slugging percentage.