Horton (25) will also be eligible for the Highlanders next season.
The fullback has been hampered by injury in recent years and played only two games in the Air New Zealand Cup last year and one game for the Highlanders this year.
Horton has played just seven games for Otago in the past three seasons and seven for the Highlanders in the last three seasons.
The new contract is for just this Otago season.
He has had rib, groin, and leg injuries, and has had two major shoulder injuries.
He was forced to withdraw from the national competition last year, as he had a shoulder reconstruction.
He was selected for the New Zealand Maori team this season but left the field against Japan last month with a hamstring injury.
Otago Rugby Football Union chief executive Richard Reid said it was great to have Horton for this season and be available for the Highlanders next season.
His NZRU contract would run out at the end of May next year.
He said with the Air New Zealand Cup changing possibly as early as next year, it was not in the best interests of the union to negotiate long-term contracts.
Horton said he just wanted to get back on the field and play rugby.
He had missed a lot of games through injury in the past few years.
He said the coaches had shown a lot of faith in him, and he wanted to repay that faith.
His future could depend on the shape of the Air New Zealand Cup next year.
The national provincial competition is under review and may become a semi-professional competition, as early as next year.
Horton, who has played first class rugby for seven years, has recovered from his hamstring injury, and prefers to play inthe fullback position.
Otago coach Steve Martin said Horton's signing was a boost for Otago and it was good to have a player of his experience at the back.
An offer had been made to All Black loose forward Adam Thomson, and he was waiting to hear back from him.
Otago had dropped its wage bill by $480,000 Reid said, with 26 contracted payers, down from 35.
Thomson's agent Warren Alcock said yesterday he had not yet discussed the offer with the All Black.
