The 34-year-old played 64 tests for Australia and has earned more than 120 Super Rugby caps for the Western Force, the Melbourne Rebels and most recently the Queensland Reds.
He has scored nearly 250 points for his country.
A utility back, he will join the Crusaders as a first-five alongside Rivez Reihana and Taha Kemara, with the Canterbury based franchise hoping O'Connor will provide both on-field expertise and off field mentorship.
"I'm really excited to be joining the Crusaders for the 2025 season and eager to test myself in a new environment," O'Connor said.
"My whole career I've heard so much about the Crusaders culture and innovation. So to experience it first hand and learn a new way of playing the game is something I'm really looking forward to."
"When we heard he was available we reached out as we thought we could offer him something new and challenging," Penney said.
"We have two exciting and talented 10s in Rivez and Taha, and James brings a level of maturity that we believe will complement them exceptionally well.
"Having played internationally and in a range of overseas competitions, we're looking forward to what James can bring to our environment from his 17 seasons of professional football.
"He's also a competitor and ambitious, which will ensure there is weekly competition for the 10 jersey."
O'Connor will be in the Crusaders environment shortly before the team's first pre-season game, with the date of that match and the opposition to be confirmed later this month.
