The French car firm had initially planned to field only two cars for Scotland's Colin McRae and France's Sebastien Loeb in next year's series.
But now the team will put out a third car for Sainz, who tested it in the south of France last month.
Citroen team chief Guy Frequelin admitted he was delighted to have Sainz link up with the team for its first world championship season.
"We were already talking to Carlos this summer but we preferred Colin McRae because he's younger," Frequelin said.
"When Ford didn't re-sign its drivers we got in touch with Carlos again and it all came together quite quickly. It's very important for us to have him in the squad."
Ford cut back on its rally budget for next year and released Sainz, who was world champion driving a Toyota Celica in 1990 and 1992.
He has achieved 23 world championship rally wins since 1987.
Ford are now without a driver who has won a world championship rally.
Their line-up next year is to be led by Estonian Markko Martin, who has impressed this year as Ford's third driver.