TSN reported the deal is worth $16 million.
"P.A. is a skilled winger who will instantly improve our offense," Avalanche general manager Greg Sherman said in a statement. "He’s a dynamic player who will help our power play and complement our young centers."
Skating alongside John Tavares, Parenteau, a 29-year-old wing, tallied 120 points (38 goals, 82 assists) in two seasons with the Isles.
Parenteau spent a half-dozen seasons in the minor leagues before finally getting a chance to play in the NHL with the New York Rangers. He had three goals and five assists in 22 games for the Blueshirts in 2009-10 before signing with the Islanders that summer as a free agent.