The 32-year old Scottish defender initially joined the Canadian club on loan from Birmingham City but has now penned a deal which will see him remain at BMO Field for the rest of the 2013 season and for a further two years.
Caldwell, who has previously played with such clubs as Newcastle United, Sunderland, Burnley and Wigan Athletic, was looking forward to playing some top quality football with Toronto as he enters the twilight of his career.
"I had other options back home," Caldwell told MLSsoccer.com. "But I've been there and done it in the championship. I've experienced success there and I loved it and it was fantastic. But this is a different challenge and I have enjoyed the standard of the football.
"I still feel like I have got a lot of football left in me. I feel really good physically and mentally. Hopefully I can be a success in the years that I am here and possibly longer, as long as my body feels good."
He added: "I came here to be part of the future and what I think will be a very successful future. I'm delighted that the club has been happy with what I have done over the past seven, eight weeks.
"I've loved what I have seen and I'm excited about the challenges ahead. [TFC head coach Ryan Nelsen] has been superb with me since I arrived here. I had a couple of chats with him before I actually arrived and he sold it to me that I should give up my summer and play through the last couple of months."