McShane, 29, becomes the club’s third signing in the space of four days following deals for striker Orlando Sa, and another Ireland midfielder Stephen Quinn.
McShane will meet up with his new team-mates on Sunday before the squad fly out to Thailand for a pre-season tour.
He follows former Hull team-mate and international colleague Quinn to the Madejski Stadium, who was also out of contract at The Tigers.
Biting at the bit to get going @ReadingFC now, hopefully I can be a part of something special and get this club back to the BPL. urzz!— Paul McShane (@pmacca15) July 2, 2015
“As well as his obvious talents as an experienced defender, who is aggressive both in the air and on the ground, I felt he was a good character to bring into our squad,” Reading manager Steve Clarke told the club website.
“Paul has gained good experience at many clubs and, like Stephen Quinn, was an important part of a promotion-winning team. He has a winning mentality.”