The Twins also outrighted right-hander Liam Hendriks off the 40-man roster to make room for Hughes, who will wear No. 45 next season.
"I don't want to get too far ahead of myself, but when you sign two guys to the dollars we have, we have high hopes that we're improving the rotation," Twins general manager Terry Ryan said. "We haven't done a good job with our rotation the last couple years, so this is a start to get it solidified."
After going 16-13 with a 4.23 ERA in 2012 with the Yankees, Hughes regressed by going 4-14 with a 5.19 ERA in '13, striking out 121 and walking 42 in 145 2/3 innings. The right-hander also dealt with a bulging disk in his back that forced him to the 15-day disabled list to open the year.
With his disappointing season, Hughes could've looked to re-establish his value with a one-year deal, but he wanted to be a part of turning around the Twins, who have lost at least 96 games in each of the last three seasons.
"I certainly thought one year was going to be an option, but the Twins approached me and wanted me for the long term, and it was enticing for sure," Hughes said. "I thought there was value in going to a team that really wants you around. So the more I thought about it, the more I thought it was the better option."
The Twins are banking that Hughes bounces back, as he's still just 27 and his peripheral stats such as his strikeout and walk rates remain strong. He's had troubles with giving up home runs throughout his career, but he will be moving away from homer-friendly Yankee Stadium.
Hughes has a career 4.10 ERA with 36 homers allowed in 375 2/3 innings on the road, compared to a 4.96 ERA with 76 homers in 405 innings at Yankee Stadium.
"This is a classic change-of-scenery situation," Ryan said. "He struggled last year with the Yankees and had some injuries. We think he has huge upside. He's in the prime of his career. He's always thrown strikes and doesn't walk many. He has the ability to miss bats and throws with velocity."
Hughes will be moving to a much more spacious park in Target Field, which has suppressed homers in its four years of existence. In a small sample size of three career starts at Target Field, Hughes is 2-1 with a 2.53 ERA over 21 1/3 innings.
"I've always loved pitching here in the past," Hughes said. "It's a pitchers' ballpark and it's a beautiful ballpark as well. I think it's one of the best in baseball."
Hughes, who is represented by agent Nez Balelo, is 56-50 with a 4.54 ERA in his career, which includes an 18-8 record and an All-Star Game appearance in 2010. The 6-foot-5 right-hander has struck out 7.6 batters per nine innings while walking 2.8 batters per nine.
Hughes also has plenty of postseason experience, posting a 4.54 ERA in 18 career appearances, including five starts.
The Twins haven't sniffed postseason contention since their last appearance against the Yankees and Hughes in '10, but Hughes is hopeful he can help be a part of a turnaround during his three years in Minnesota.
"The fact that the organization wanted me to be here for more than one year and be a part of something certainly played a role," Hughes said. "I'm happy to come in here with Ricky and try to improve on some things and bring this team to where we think it belongs."