Menez moved to PSG on a free transfer from Roma in 2011 and scored 11 goals in 108 appearances during his three-year stay with the reigning Ligue 1 champions.
The 27-year-old flew to Italy for a medical in Milan on Friday and all the formalities appear to have now been completed.
The club said in a short statement on their website: “AC Milan would like to communicate that Jeremy Menez has signed a contract that ties him to the club until June 30th 2017.”
Clarence Seedorf was sacked as Milan head coach earlier this week after just five months in charge following the club’s eighth-placed in finish in Serie A.
The 38-year-old has been replaced as manager by his former Milan team-mate Filipo Inzaghi, who has stepped up from his role as manager of Milan’s U19s.
Speaking ahead of the move, Menez stated his eagerness to work with the former Italy striker and promised to help the side return to the upper echelons of Serie A.
“Mr Inzaghi is in charge for next season and he has a big will to win with Milan. He already won a lot as player and he wants to win also as a coach,” Menez said.
“My priority is Milan. We must get back in the top three of the Italian league and also to try to win the Serie A title.
“To supporters I assure you I'll give everything on the pitch.”