The ex-England international, 35, was a free agent after his contract with Crystal Palace expired in June.
Cahill spent two seasons with Palace but was unable to agree new terms with the Eagles.
Last season Cahill played 20 games for Palace, helping it keep four clean sheets. He made 13 tackles with a success of 69.23 per cent and won 61.87 per cent of his 139 duels.
The veteran defender links up with former Chelsea team-mate Scott Parker, who is head coach at Bournemouth.
Cahill made 290 appearances in all competitions at Stamford Bridge between 2012 and 2019 and won the Premier League and FA Cup twice and the UEFA Champions League.
"I am in this stage of my career I needed something that is going to drive me to perform," Cahill said.
"I feel this is the best place for me to be. I wanted a goal and something to challenge me.
"I have been fortunate to play in the Premier League, and it is 17 years since I played in the Championship, but I saw an opportunity to be involved in this journey.
"I have always got on well with the manager, I played with him and have a good relationship, and he stressed to me what he is trying to achieve here."
Cahil was capped 61 times by England and played at the 2014 and 2018 FIFA World Cups for the Three Lions.