Details of the deal were first reported Monday by FOXSports.com.
Kemp and general manager Ned Colletti each signed the contract at a news conference at Dodger Stadium. Owner Frank McCourt, who has agreed to sell the team, watched.
The deal is the seventh-largest contract in baseball history, trailing the last two contracts of Alex Rodriguez and deals for Derek Jeter, Joe Mauer, Mark Teixeira and CC Sabathia. It matches the contract that Manny Ramirez signed with Boston before the 2001 season.
The deal, which was pending Kemp passing a physical when first reported, also would be the largest in team history. The previous record was set in 1998 when pitcher Kevin Brown signed a $105 million, seven-year deal.
Kemp's sixth season in the majors was his best. He hit .324 with personal highs of 39 home runs, 126 RBI and 40 stolen bases in 2011, when he was paid $7.1 million. His .586 slugging percentage and .985 OPS also were career highs.
Kemp has produced 128 homers and a .294 batting average in 787 career games. He is also a two-time Gold Glove winner.