The 32-year-old defensive midfielder had been a free agent since leaving Al Jazira last month.
The Parisians mark Diarra's 10th club and he couldn't be happier.
"I am very happy to have signed for my hometown club," Diarra told PSG's official website. "Paris Saint-Germain represents a lot to me and, with the international dimension the club has taken in recent seasons, it is every player's dream to play here.
"I am lucky enough to make this dream come true, to know what it feels like to play at the Parc des Princes wearing the Rouge et Bleu. I intend to do everything I can, bring all my experience and show all my desire to play, to prove that the club has made the right choice in showing its confidence in me."
"His vast experience, both of foreign leagues and the international football with the France national team, gives our coaching staff another option as we enter a very exciting second half of the season.
"I know that Lassana is very ambitious, like everyone here. Our fans at the Parc des Princes really love players that hail from the Paris region. I know they will give him a warm welcome and the strength to help our team reach its objectives."