Dynamo traded midfielder Warren Creaville to Toronto on Wednesday in order to obtain rights to sign Beasley, who started all four matches in Brazil for Jurgen Klinsmann's side.
"DaMarcus has had a great career, as we saw at the World Cup," Dynamo coach Dom Kinnear said. "To bring in a player of his quality is a big plus for the team."
Beasley has accrued 120 caps, including 11 World Cup match appearances.
"I am excited and ready to start this new chapter in my career," Beasley said. "I feel fit and ready to go and hope Dom will see my work ethic and desire to play at a high level."
Beasley, 32, spent the past three seasons with Puebla of the Mexican league but prior career stops have included Hannover, Rangers, Manchester City, PSV Eindhoven and Chicago.
"I am thrilled that DaMarcus will be joining our club, Dynamo president Chris Canetti said. "It's exciting to have a player with such decorated credentials here with us."