The 28-year-old has had limited opportunities with the Waratahs in the Super 12 this season due to the form of ex-Bath man Shaun Berne, who slotted into the team after McRae picked up a knee injury.
McRae fills the gap at Gloucester left by the departure of French points-machine Ludovic Mercier after he left for Grenoble, and he returns to the English scene after a successful two-season stint with Saracens, with whom he scored 104 points in his 15 Premiership games.
A former Rugby League star with Canterbury and South Sydney, McRae will be remembered by many in Britain for his torrent of punches on Irish fly-half Ronan O'Gara during an ill-tempered meeting between the Waratahs and the Lions in Sydney back in 2001, which left a bloodied O'Gara in need of stitches on a nasty eye wound.
McRae also boasts Australia 'A', Sevens and Australian Barbarians rugby on his CV, with Gloucester coach Nigel Melville saying of his new acquisition: "We know that McRae is a player of real quality, and we are excited about what he can do in a Gloucester shirt.
"He has all the skills and can play in a number of positions, which might help us during the World Cup period. He knows the Zurich Premiership and the Super 12 competitions, and has been around for a while, which will help the young players we have in the squad to develop around him."
McRae's long-term chances at the Waratahs were somewhat up in the air following the appointment of Ewen McKenzie to succeed coach Bob Dwyer, and with centre Nathan Grey doing a solid job for the Wallabies at fly-half last week against England, there is no shortage of potential cover in the No.10 spot, with ex-League back Mat Rogers also an attacking option.
Looking ahead to his new move, McRae told the official Gloucester website: "I am obviously rapt to have the chance to come back to England and the opportunity to be joining such a successful team.
"Gloucester had an excellent season last year and I hope I can be part of more of the same this season.
"I have been to Kingsholm and the world-famous support is fantastic, I can’t wait to have that behind me when we run out."
McRae's presence will be especially valuable to Gloucester during the World Cup in October and November, when a host of their international players will be away on Test duty. He joins England Sevens captain Simon Amor in the fly-half ranks, with Amor also able to cover a number of positions in the backline.
By Mark Smith