The 27-year-old found playing time hard to come by in the French capital last season, starting just seven matches as PSG romped to a second straight Ligue 1 title.
Menez revealed in March that it was unlikely he would stay in Paris, and the former Roma man has now secured a return to Serie A on a free transfer.
The signing forms part of Filippo Inzaghi's rebuild at the San Siro after the former striker replaced Clarence Seedorf as head coach.
"I'm very happy to be here," he told the club's official website. "I chose Milan because, even if you have had a bit of trouble last year, we hope to come back and win something important.
"You see that Inzaghi is ready for next year and he really wants to win with Milan. He has already won much as a player and wants to win as coach.
"We have to get back among the top three in the Italian top-flight to try to win Serie A.
"We must work so much and then we will see, we hope to do well this season.
"I want to assure fans that I will give everything on the field and hopefully bring some titles to Milan because this club deserves it. Forza Milan, a big salute to all the fans."
Ella Toone: Why isn't the midfielder playing for Manchester United and England?
'David Beckham was desperate to play in my squad, but I didn't want to bring him along and waste the FA’s money: I had to pick the strongest players': Great Britain coach reflects on Becks snub as 'one of the toughest decisions' of his career
