The 2016 Giro d'Italia victor is the first official signing for the Bahrain-based team.
“I was immediately fascinated by the idea of a strong project plan built around me,” Nibali announced on his website.
“I have believed in the team from day one because it has a clear vision and is to be carried out by some of the best professionals in the sport.
“This trust and confidence in me made me take the final decision for this new exciting adventure of my career. I can’t wait to meet their expectations at the most important races in the world wearing the jersey of Bahrain Merida.”
Earlier this week, the Bahrain project announced bike manufacturer Merida as its co-sponsor.
The Bahrain Cycling Team states on its website that it aims to:
"Showcase the Kingdom of Bahrain on this global stage, presenting the Kingdom as a premier business and tourism destination, as well as supporting the growth of cycling within Bahrain and the Middle East."
The announcement of the successful WorldTour team applicants will be made by the UCI Commission at the end of 2016.