Blues head coach Sir John Kirwan needed to find an experienced replacement following the departures of Ali Williams and Anthony Boric at the end of last season.
Donnelly, 32, has signed for one year. The other locks are Liaki Moli, Culum Retallick and Patrick Tuipulotu.
Donnelly made his Super Rugby debut for the Highlanders in 2004 and earned the first of his 15 All Blacks test caps against Australia in 2009.
After eight years with the Highlanders, he joined the Crusaders in 2012 and headed overseas to join the Mitsubishi Club in Japan later that year, before returning for the Crusaders' 2013 campaign.
"I'm really keen to continue playing rugby in New Zealand and, when this opportunity came up to join the Blues, I jumped at the chance," Donnelly said.
"I've really been enjoying my time with Otago this season and imparting some of my knowledge and experience onto a young group of players and I'm relishing the opportunity to do the same with a similarly young and exciting Blues team."
The 2014 Blues squad will be formally announced on October 30.
