Kershaw can earn up to $8.5 million this upcoming season in bonuses focused on starts (13-16) and days on the roster (60 and 90).
Kershaw was seen with other Dodgers players earlier on Monday before the deal was announced.
The future Hall of Famer will be entering his 18th year, all with the Dodgers. Kershaw announced late last year that he underwent foot and knee surgery but planned to return this year at some point.
He'll give the Dodgers yet another viable starting pitching piece in a rotation that's already filled to the brim with Cy Young award winners and some of the best young talent in baseball, including Japanese prospect sensations Roki Sasaki and Yoshinobu Yamamoto.
Kershaw is one of the most decorated starting pitchers of his time with an NL MVP under his belt along with three Cy Young awards, five-time ERA titles, a Gold Glove, a Roberto Clemente award, a Triple Crown, and two World Series rings (2020, 2024).
Kershaw ranks 21st on the all-time strikeouts list with 2,968. He needs just 12 more to surpass former Dodgers teammate Zack Greinke. Almost every single pitcher in the top 20 is either in the Hall of Fame or is heading to it once they retire.
The Dodgers are coming off of a World Series win and a free agency period where many are claiming they broke baseball with how star-studded they've become. Los Angeles is the heavy favourites, and rightfully so, to win the World Series this upcoming season.