The Frenchman was released after six years with Barcelona having helped the Spanish giants to two Champions League triumphs and four La Liga titles in his time in Catalonia.
The left-back has also had to undergo surgery twice in recent years due to a tumour on his liver and only returned to action in March after more than a year on the sidelines.
Barcelona decided not to renew the 33-year-old's contract, leaving Abidal to find a new club and the former Lyon defender says a return to the club where he made his professional debut was a move he could not turn down.
"Bringing experience and helping the young players is what I have done (for) my whole career. I am very happy to be able to do it here," he said.
"Monaco is special to me; it is where it all started for me. It was my first choice."
Now back to full fitness, Abidal is keen to put his health issues behind him and aid Monaco and their free-spending owners in taking the club to the top of European football.
"I had to fight against disease," he added. "Now the most important thing is to put Monaco in a position to win the national title again and play in the Champions League."
French international midfielder Jeremy Toulalan was also unveiled as a Monaco player, having signed a two-year deal, and Monaco's sporting director Vadim Vasilyev claims the club's transfers dealings are now complete for the summer unless there are any "exciting opportunities."