The deal is subject to a work permit being granted, but Trotters boss Sam Allardyce is delighted with the news.
"I believe that in signing El-Hadji Diouf we have recruited a player of real potential," he said.
"If he is willing to work hard and is ready to adapt to our coaching principles he will have the ability to become a top player at the club.
"I firmly believe we can resurrect his career and give him the impetus to recapture the form that made him into one of the best footballers to come out of Africa in recent times."
