Auckland-born Te'o, 32, who was dropped from Eddie Jones' squad for the World Cup, had been a favourite of the Australian's during his time as England boss but a reported altercation with fullback Mike Brown during a training camp in Italy in July cast a cloud over his involvement.
The former Worcester midfielder's last international appearance came in the Six Nations draw over Scotland and he played two Tests for the British and Irish Lions during their tour of New Zealand in 2017.
"The English international will come and re-inforce the Red and Blacks' ranks until November 2019," Toulon's statement said.
Toulon, three-time European champions, have seen veteran Mathieu Bastareaud leave the club this summer for Lyon after he was omitted from France's World Cup group.
Australian centre Duncan Paia'aua, who joined the club for the new campaign, has been sidelined by an Achilles injury.
The Stade Felix-Mayol side, who expect to be without the likes of scrumhalf Baptiste Serin, number eight Sergio Parisse and prop Emerick Setiano during the World Cup, begin the new league season by travelling to Agen on Saturday.