Former Barcelona goalkeeper Victor Valdes is training with Manchester United as he recovers from a serious knee injury.
Crystal Palace defenders Damien Delaney and Joel Ward have yet to agree new deals at the club.
Terms of the 34-year-old's deal, including the length, were not disclosed.
"Adding a player of Julio Cesar's experience and ability only strengthens our club both in the short and long term," said Toronto general manager Tim Bezbatchenko.
"We are committed to creating a culture of winning at TFC, and there are few people in the world of soccer with a proven track record of consistently getting results that Julio has. We are very excited to bring him to Toronto FC."
Earlier this week, Cesar was named in Luiz Felipe Scolari's provisional Brazil squad for the friendly against South Africa on March 5, but he has been desperate to leave Loftus Road to secure regular playing time in the year his home country host the World Cup.
He will now become the third marquee name to join Toronto - coached by former QPR defender Ryan Nelsen - this off-season, following on from Michael Bradley from Roma and Tottenham striker Jermain Defoe.