The 26-year-old was given a 10-month contract by the 2014 champions after he returned to New Zealand following an early release from a two-year deal with French side Clermont.
He linked up with his home province Hawke's Bay in New Zealand's domestic championship upon his return and had indicated last month there had been interest from the Waratahs though local media later reported he had had second thoughts about moving to Sydney.
The 10-test winger's career in New Zealand had been blighted by alcohol-related discipline issues and he left the Crusaders to play in France in 2014.
Waratahs head coach Daryl Gibson, previously an assistant coach at the Crusaders, said the 2011 World Cup winner would continue to work on his off-field issues and he had faith he would be able to overcome them.
"I've spoken with Zac extensively, and he is prepared to earn the respect of his team mates through his actions, and to uphold the values of our club," Gibson said.
"He's probably been carrying that bad-boy baggage around with him for the past few years, and from my observations he has moved past it and grown up a bit ... his challenge will be to demonstrate he can make good choices and prove that.
"Of course his signature comes with risks for both parties, but we strongly believe in his ability and will support him with his efforts to continue his rugby career, he's highly motivated and aspirational about his career so our challenge will be to get the best out of him."
