According to sources, Saunders will make $9 million this season with the Phillies and the club option for 2018 will be worth $11 million with incentives potentially pushing the option year to $14 million.
Saunders, 30, gives the Phillies a left-handed bat with some pop.
Saunders projects as the starting right fielder come April, but he also can play first base and provide relief for Tommy Joseph if needed.
The signing means Roman Quinn likely will begin the year at Triple-A.
To make room on the 40-man roster for Saunders, the Phillies designated right-hander Severino Gonzalez for assignment. He played in a career-high 140 games with Toronto in 2016 and made the American League All-Star team on the strength of a first half in which he hit .298 with 16 homers, 42 RBIs and a .923 OPS. He struggled through much of the second half of the season but finished at .253 with 24 HR, 57 RBIs and an .815 OPS.
The addition of Saunders likely marks the final offseason move for the Phillies. The club traded for Pat Neshek, Howie Kendrick, and Clay Buchholz and added reliever Joaquin Benoit.