McStay shifts to his home state of Victoria after nine AFL seasons in the Queensland capital.
In return for losing McStay, the Lions will receive a second-round draft selection as compensation, which currently stands at pick 35.
McStay kicked 138 goals for Brisbane in 161 games, and played in all three of the Lions' finals this year.
Collingwood football boss Graham Wright expressed his delight at securing the 27-year-old after GWS forward Bobby Hill signed on Monday.
"We identified we needed more key position support, and Daniel's attributes suit the way Craig (McRae) and our coaching group want to play," Wright said.
"He has the ability to play at both ends of the ground and he has been a more than adequate second ruck this year."
Another long-talked about move was confirmed on Tuesday with veteran defender Liam Jones returning to the Western Bulldogs on a three-year deal.
Jones makes his way back into the AFL system after sitting out the 2022 season due to the league's vaccination protocols.
The 31-year-old opted to retire from Carlton rather than receive the COVID-19 vaccination.
"I'm just so grateful to have the opportunity to play at the highest level again," Jones said.
"This club gave me a chance all those years ago and I'm excited by the prospect of returning and helping this group continue to strive for success."
Jones played 66 games for the Bulldogs between 2010 and 2014 before spending seven seasons with Carlton.
Meanwhile, former Essendon livewire Anthony McDonald-Tipungwuti has met with Fremantle about a shock return to the AFL.
The dynamic forward retired in May after 126 games for the Bombers, citing a loss of passion to play at the elite level.
McDonald-Tipungwuti has been travelling around Australia since calling it quits from the Bombers.
But the 29-year-old's manager, former Essendon champion Scott Lucas, confirmed McDonald-Tipungwuti is contemplating a return to football.
The AFL cult favourite has spoken with Essendon and Fremantle about playing again, but talks with the Dockers are more advanced.
"Some personal circumstances have changed, which has meant that he has had the opportunity to reconsider," Lucas told AFL Trade Radio on Tuesday.
"He's in a really good head space, physically he's also in a better position than perhaps he was at the end of his time at Essendon.
If McDonald-Tipungwuti was to move to Fremantle, he would have to be delisted by Essendon first as he only retired this year.
Fremantle winger Blake Acres is off to his third AFL club after being traded to Carlton for the Blues' future third-round pick.
Acres moves to Ikon Park after 120 games with the Dockers and St Kilda after making his debut back in 2014.
The 26-year-old spent three seasons at Fremantle but was offered a better deal and more opportunities at Carlton.
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