The former Aston Villa shot-stopper is the second signing for Mark Hughes in the space of two days.
Taylor follows the same path of midfielder Gareth Barry, who also traded Villa Park for the City of Manchester Stadium, and manager Mark Hughes was delighted to have sealed the deal.
"We are delighted to be able to add a goalkeeper of Stuart's undoubted calibre to the squad," Hughes explained to the club's official website.
"Stuart is still a fairly young goalkeeper at 28 but he provides a wealth of experience and reliability."
Taylor will provide cover, and competition, for first-choice glovesman Shay Given, and will also pave the way for burgeoning shot-stopper Joe Hart to leave the club on a loan deal in order to secure first-team football in the build-up to the World Cup in South Africa.
Hart is keen to be playing regular football so that he can play his way into contention for England boss Fabio Capello's 2010 squad.
Alan Dawson, Goal.com