Financial terms weren't disclosed, but a source told ESPN.com the deal is worth $5 million.
The Panthers made the announcement on Twitter, including a photo of Cotchery signing his new deal.
The 11-year veteran caught a career-best 10 touchdown passes last season with the Pittsburgh Steelers. He chose Carolina over the Steelers two days after visiting with the Panthers' staff in Charlotte.
The Panthers were in desperate need of a veteran receiver after cutting Steve Smith last Thursday and losing Brandon LaFell ( New England Patriots), Ted Ginn Jr. ( Arizona Cardinals) and Domenik Hixon ( Chicago Bears) in free agency.
Cotchery has 437 career catches, including 46 last season. A former standout with NC State, Cotchery is more of a complementary player at this stage of his career.
The Panthers are expected to take a receiver with one of their first two picks in the draft, and possibly to sign another veteran in free agency.
Cotchery wore No. 89 at Pittsburgh, the number Smith wore at Carolina the past 13 seasons. Cotchery said he and the Panthers have not talked about what number he will wear, but he assured it will not be No. 89 that Smith wore.
"I definitely won't touch that one,'' Cotchery said. "Steve is a guy ... he's one of my favorite players. Not just [among] receivers. He competes every Sunday. It's been fun to watch him play. He's been the face around here a long time. I definitely wouldn't think about touching that number.''
There were several reasons Cotchery chose Carolina. He met his wife while both were attending nearby NC State and most of her family is from North Carolina, so this is like home. He also is familiar with the Carolina offense, a system he played in for five years at times during his career.
The opportunity to use his veteran leadership to a young group also was a factor.
"Just basically help out on offense,'' Cotchery said. "We have a ton of weapons here in the running back position and a great tight end. Those guys have been doing a great job. And obviously, Cam [Newton] at quarterback.
"I just want to take advantage of the opportunity when I have those to make plays and help the team put points on the board.''
Cotchery said Carolina's lack of experience and depth at wide receiver after free agent losses wasn't a factor.
"First and foremost as a receiver, you look at the quarterback position,'' he said. "I left Ben Roethlisberger. If you're going to leave a quarterback like that you better be sure that you're going to go to someone that can play at a high level. "I feel we have that here with Cam Newton. That's what I looked at.''
Cotchery isn't concerned about the lack of offseason throwing time with Newton, who is expected to miss most of the next four months recovering from Wednesday's surgery on his left ankle.
"That's just one part of the chemistry factor,'' Cotchery said. "The most important part is the communication part ... see what the quarterback is thinking when guys are running around him, things of that nature.
"The throwing and catching part of it, you can't get to that part without first addressing the communication part.''
The loss of Cotchery costs the Steelers their No. 3 receiver as well as just one of 13 players who recorded double digits in touchdown receptions last season.
His departure also leaves the Steelers woefully thin at yet another position. Aside from Pro Bowler Antonio Brown, Markus Wheaton is the most experienced receiver on the Steelers' roster, and he played just 153 snaps his rookie season.
Wheaton is expected to get the first crack at replacing Sanders in the starting lineup.
ESPN.com Steelers reporter Scott Brown contributed to this report.