McCarty, 29, is the Red Bulls' all-time leader in regular season starts and minutes played. The Fire will pay $200,000 this year, with the other $200,000 paid in 2018.
“We thank Dax for his service to the club,” Red Bulls head coach Jesse Marsch said in a club statement. “He will go down as one of the best players and captains in franchise history. At this point in time, we felt that this was the right move to put our team in the best position to succeed both now and for years to come.”
The veteran midfielder joins the Fire ahead of his 12th MLS season. He spent five years with FC Dallas prior to joining D.C. United in 2011 for several months. In June 2011, McCarty was traded to the Red Bulls, with whom he became a central midfield staple during the club's most successful period.
McCarty joins a Chicago side looking to climb out of the basement after a last-place finish in 2016.
“Since the middle of 2016, we made acquiring Dax our No. 1 priority,” Fire general manager Nelson Rodríguez said. “In order to do so, we had to exchange worthy and appropriate compensation. We believe adding his character and leadership in the locker room, as well as his exceptional soccer abilities on the field, dramatically improves our team.”