Newsday's Arthur Staple reports the contract is worth $18 million.
Halak was scheduled to become an unrestricted free agent July 1. The Islanders acquired his rights from the Washington Capitals on May 1 in a trade for a fourth-round pick in the 2014 NHL Draft.
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"I'm thrilled," Halak told the Islanders website. "It's a big opportunity for me. It's a young team. There are some really good hockey players on the team and that was the biggest factor. Plus I know [defenseman] Lubomir Visnovsky. He's a really good guy and a good friend of mine."
Halak won 29 games this season. He was fourth in the NHL with five shutouts and eighth with a 2.25 goals-against average.
In 272 NHL games with the Montreal Canadiens, St. Louis and Washington, Halak has a 144-85-29 record with a 2.38 GAA, .918 save percentage and 30 shutouts. He has appeared in 23 Stanley Cup Playoff games with Montreal and St. Louis, with a 10-11 record, 2.42 GAA and .942 save percentage.
Halak's career highlights include helping the Canadiens reach the Eastern Conference Final in 2010 and winning the Jennings Trophy in 2011-12, when with St. Louis he and Brian Elliott allowed the fewest goals in the League.
"I'm 29 years old and I know what it takes to be a No. 1," Halak said. "I want to prove myself to everyone that I can be a No. 1."
Halak was a ninth-round pick (No. 271) of the Canadiens in 2003.
"We're excited to have Jaro join the organization," Islanders general manager Garth Snow said. "He's someone we targeted when the season ended and we're happy he's made this commitment as we continue to make our team stronger this offseason."