New York took Milton with its first round pick, 20th overall, in the June 1996 draft. Milton was traded to Minnesota two years later in the deal that sent Chuck Knoblauch to the Yankees.
Milton, who had elbow surgery last June, will be assigned to Triple-A Scranton and immediately placed on the disabled list, allowing him to continue rehabbing at New York's minor league complex in Tampa, Fla.
"He's a left-hander, he's a got a pretty big breaking ball," Yankees manager Joe Girardi said. "Obviously, we'll have to see how he does. It's the beginning stages of him trying to get back to the big leagues."
The 32-year-old Milton went 0-4 with a 5.17 ERA in six starts with Cincinnati last season. He threw in the outfield during a workout in Tampa on Friday.
Milton, who has also pitched for Philadelphia, has a career record of 87-84.