Schweinsteiger, 32, has been a long-term target for Chicago, having been spotted meeting with Fire manager Veljko Paunovic in November.
And with the former Germany star out of Jose Mourinho's plans at Old Trafford, he has chosen to move to MLS and could join up with the Fire as early as next week, the club told theChicago Tribuneon Monday night.
On Tuesday, the Fire confirmed that the move is official, pending the player's visa clearance.
"Chicago Fire acquires MF Bastian Schweinsteiger as Designated Player from Manchester United. Schweinsteiger will officially be added to the Fire's roster and available for selection upon passing a team physical, and pending receipt of his ITC and P1 Visa," the club said in a statement.
"This is a historic moment for our club," Fire general manager Nelson Rodriguez said. "We have added one of the greatest champions in all of sports. Bastian's talents, attitude, and character will be a perfect complement to our squad as we continue building a championship program."
Rodriguez also told the Tribune: "We're adding someone who has won at every level, including the very highest levels, and has done so in a way that is consistent with our values.
"We as a club will now be forced to hold ourselves to a higher standard, an accountability level. Previously, I think we could satisfy ourselves with what is known domestically. Now we need to rise to a standard that is set more internationally."
Schweinsteiger has signed a designated player contract that will pay him $4.5 million in 2017, according to the Tribune, which also said the deal is for one year with a mutual option for the future.
"I am sad to leave so many friends at Manchester United," Schweinsteiger told the Man United website. "But I am grateful to the club for allowing me the chance to take up the challenge at Chicago Fire.
"I have enjoyed working with the manager, the players and staff here and wish them all the best in the future. But I have to reserve special thanks to the United fans -- whose support has been a very special part of my time in Manchester.
"I was delighted to be part of the squad that won the FA Cup for them last season and will always remember their energy and their passion. Now is the right time for me to start a new chapter in Chicago and I am looking forward to it."
A Bayern Munich legend, Schweinsteiger joined Man United in 2015 but has been restricted to just 18 appearances for the club after falling out of favour with Mourinho in the summer of 2016.
The 32-year-old was told he was free to find another club, but despite interest from the MLS, China and Italy, Schweinsteiger opted to stay at United and fight for his place, at the same time as training away from the first team with the club's youngsters.
"Having the strongest possible midfield is essential for how we want to play," Paunovic said. "We see Bastian helping our organization of the attack, and impacting the final third build-up with his vision and creativity to produce the final pass, as well as his capacity to score goals. His versatility on the field, and his immense experience at the highest levels of this sport will be a great benefit to our team."
After scoring against Wigan in the FA Cup on Jan. 29, Schweinsteiger has only made one substitute appearance for United in the Europa League on Feb. 22.
"Throughout my career, I've always sought opportunities where I hoped to make a positive impact and to help make something great," Schweinsteiger said in a statement the Fire provided to the Tribune.
"My move to Chicago Fire is no different. Through my conversations with Nelson and Paunovic, I'm convinced by the club's vision and philosophy and I want to help them with this project."
The Fire have finished with the lowest point total in MLS the past two seasons and have only played in one playoff game since reaching the conference finals in 2009.
Schweinsteiger will join forwards David Accam and Nemanja Nikolic as DPs with Chicago, which also moved to add midfielders Dax McCarty and Juninho in the offseason.
The Fire have started the 2017 season with a win, a draw, and a defeat, most recently losing 4-0 to expansion side Atlanta United on Saturday.
Schweinsteiger move to MLS 'bemuses me'
Shaka Hislop says Bastian Schweinsteiger's move to Chicago Fire makes absolutely no sense to him.