Brian Laws confirmed the deal: "Although he is away on holiday at the moment, Paul rang me up to let me know that he has agreed to join the club. That is great news for us."
'Mussy' turned down the chance to join their Third Division rivals Boston United.
This leaves City with first choice 'keeper Boaz Myhill, who was bought from Aston Villa for £50,000 in December, and Northern Irish international Alan Fettis as backup.
Elsewhere, ex-Tiger Adrian Caceres has signed for Yeovil. He had a brief spell at Boothferry Park in 2002 when Jan Molby took him on trial, but no more than one league appearance came of it.