The former Manawatu and Hurricanes player will join the team for the next two seasons.
One News reported the signing yesterday and the Highlanders confirmed it this afternoon.
The 29-year-old World Cup-winner signed a lucrative three-year deal with Toulon in late 2018 but he is yet to play a game for the French club due to an ongoing shoulder injury.
With the remainder of the French Top 14 set to be abandoned due to the coronavirus pandemic, Milner-Skudder will join the team for the Super Rugby Aotearoa competition scheduled to start on June 13.
The Highlanders are scheduled to open that competition in Dunedin against the Chiefs.
Milner-Skudder burst on to the scene with Manawatu and the Hurricanes and starred for the All Blacks at the 2015 World Cup. Frequent injury troubles hampered his progress since, which led to him committing his future abroad.
Milner-Skudder's return follows Sam Whitelock's to the Crusaders after the veteran All Blacks lock returned home early from Japan after the coronavirus spread halted the Top League season there.
- additional reporting NZ Herald