The deal announced Friday has a 2012 club option at $3.75 million.
The 33-year-old Frasor went 3-4 with four saves and a 3.68 ERA in 69 games last year. He allowed 61 hits with 27 walks and 65 strikeouts in 62 2/3 innings.
Frasor became a free agent after last season but accepted Toronto's offer of arbitration.
In seven seasons with the Blue Jays, he has a record of 22-27 with 36 saves and a 3.76 ERA in 154 relief appearances.