Niskanen, 27, set career highs in points (46), goals (10), assists (36), games played (81) and game-winning goals (6) in 2013-14 with the Pittsburgh Penguins.
"We are very excited that Matt Niskanen has chosen to sign with Washington," said Capitals GM Brian MacLellan. "At 27 years of age, he is just entering his prime for a defenseman. We feel he will be a staple on our blueline for many years to come. We have stated all along that upgrading the defense was our top priority this offseason and we feel we accomplished our goal with our signings today."
The Virginia, Minn., native has registered 167 points (35 goals, 132 assists) and 266 penalty minutes in 491 career NHL games with Pittsburgh and Dallas.
Niskanen was drafted by the Stars in the first round, 28th overall, of the 2005 NHL Entry Draft.