The 26-year-old Northern Ireland international moves across the Pennines after his contract with Burnley ran out and the Terriers have included a further year's option in the initial deal.
Paterson joins Jon Stead and Adam Hammill in arriving at the Yorkshire club and manager Mark Robins said: "Martin represents another excellent signing to the group of forward players in the squad.
"In addition to his arrival, we will still be looking to add to our strike force as the summer transfer window progresses.
"I am a firm believer in putting round pegs in round holes and Martin has come to the club to play as a striker. He played three quarters of his 41 games for Burnley last season in a wide position, but his career history shows that he has flourished as a central striker and that is the role he feels is his best. I agree and he will fulfil that role for us.
"Martin is a strong and resilient character with an excellent work rate which I think our supporters will really appreciate. That is backed up with good technical ability and importantly a proven track record of scoring goals at Championship level.
"He is a different type of player to those already here and will complement our other strikers and pose a different threat for opponents.
"Our patience throughout the course of the closed season has really paid dividends this week with our three signings coming together.
"All three have chosen to join us over other Championship clubs for football reasons, and I believe that is testament to everyone at Huddersfield Town and the development of the club."