"I'm pleased that after long negotiations we've signed a player of Danny's quality," Keane told the club's official website.
"I know him personally and he's a great character. He can play at centre-half or left-back so his versatility will be a big plus for us."
Higginbotham started his career with Keane at Manchester United before joining Derby in July 2000 for £2m.
After three-years at Pride Park, he moved to Southampton and made more than 100 appearances for the Saints before joining Stoke last season.