The 27-year-old former Manchester United trainee, who has also played for Inverness and Ross County, arrived at Tannadice as a free agent on the day David Robertson's departure to St Johnstone was confirmed.
United manager Peter Houston told the club's website: "John is a player I have long admired and someone I believe can come in and add quality to the midfield area of our squad.
"He will add experience to the team as he not only received a good learning base in his four years at Manchester United but also has five years' experience of playing in the SPL with Inverness and Hibernian.
"His energy and drive, along with his desire to play football, made him an obvious target for me as I look to enhance the squad for next season."
Rankin is the first signing as United seek to fill the holes left by Robertson and made by the imminent departures of out-of-contract trio Craig Conway, Morgaro Gomis and Prince Buaben.
Rankin joined Hibs in January 2008 but has been a peripheral figure under Colin Calderwood and last played for the capital club in February.
• Scotland's reduction to four sides competing in Europe next season, through the loss of the Fair Play place, means an SPL club will be given a bye into the third round of the League Cup despite not qualifying for Europe.
The SFL's seeded knock-out tournament, which will be known as the Scottish Communities Cup, will start with Round 1 of 15 ties on Saturday, 30 July. These will involve the 30 sides from the First, Second and Third Division in the season just ended with Dunfermline having an earlier start than their SPL rivals, whereas relegated Hamilton Accies will have the day off. Holders Rangers along with Celtic and Hearts all miss Round 2 as they have qualified for Europe, with Dundee United progressing automatically in the Communities Cup through either a European exemption or being the highest-placed SPL side that did not qualify for Europe.
Motherwell or Kilmarnock will take the other safe passage to Round 3 dependant on the outcome of the Scottish Cup final on Saturday. If Motherwell win the cup they qualify for Europe and are exempt from Round 2 duty. However, if Celtic win, Kilmarnock progress automatically.