The Tigers desperately needed a closer to replace the retired Todd Jones and compete with Fernando Rodney. But Detroit wasn't going to bid for free agent Francisco Rodriguez, who signed a $37 million deal with the New York Mets, or give Kerry Wood the $20-plus million he got from the Cleveland Indians.
"(Lyon) was next on our list after those guys were gone," Detroit manager Jim Leyland said.
Along with his salary, Lyon can earn $500,000 in performance bonuses.
Lyon saved 26 games in 31 chances with the Arizona Diamondbacks, then was replaced by Chad Qualls as their closer late last season.
He had a 2.43 ERA before the All-Star break and an 8.46 ERA after, ballooning with a 12.27 ERA in August.