The 33-year-old has agreed a one-year deal with the Candystripes, with the option of a second.
The former Newcastle United player has been capped 57 times by Northern Ireland and made his last appearance in their 2-0 win over San Marino in May 2023.
A native of Eglinton, Ferguson can play at both left-back and left wing.
He has spent the past few seasons at Rotherham United and left the club following their relegation to League One at the end of his contract in the summer.
He said: “I’m delighted to be coming home and once I had spoken with Tiernan and heard his plans for the club, it was a simple decision” he said.
“I’ve been training hard after a frustrating last season and I’m feeling very strong.
“I will really benefit now from a full pre-season and be ready to go when the new campaign starts.
“Derry City is obviously a club I know a bit about and I’m well aware of how passionate that support base is.
“I’m really looking forward to doing my bit to hopefully bring success to the Brandywell.”
Ferguson becomes the third signing of the week after Adam O’Reilly and Brian Maher with the manager suggesting there could be one or two more in the coming weeks.
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