Murphy has, to date, played 46 times for Leicester including 22 run-outs this season in the Guinness Premiership, Heineken Cup and EDF Energy Cup.
The 26-year-old, who was a Schools and Under-21 international, made his debut for Ireland 'A' in last year's Churchill Cup and will be hoping his move home can lead to further 'A' caps and perhaps a breakthrough into the Irish senior squad.
Connacht CEO Gerry Kelly was very pleased to have secured Murphy's signature and he is anticipating an increased level of competition in the Connacht squad for the 2008/09 season, particularly at scrum half.
"Frank Murphy will provide an experienced link between our forward pack and these young backs (Fionn Carr and Ian Keatley) who have also signed with us for next season," Kelly said.
"With Frank, Conor O'Loughlin and Kieran Campbell, we should have great competition for the scrum half berth and the ability to vary our game to all conditions and opposition."
Meanwhile, it has been announced that Connacht's main sponsors, Bank of Ireland, have extended their contract with the province for another three years.
Bank of Ireland's association with Connacht Rugby is one of the longest running sports sponsorships in the country, going back to the outset of the professional era in the mid 1990s. Connacht CEO Kelly said it was a major boost to the province.
"We've enjoyed a very strong relationship with Bank of Ireland and we're very grateful for the support they've shown us," he said.
Donal Flynn, Regional Manager West, Bank of Ireland, added: "Bank of Ireland has enjoyed a very good relationship with Connacht Rugby over the years and have been proud to be part of their success story. We look forward to many more great days ahead."