The 30-year-old has played 27 Tests for the Black Caps and had a spell with Lancashire this summer.
He took 32 Championship wickets for the Red Rose, including 6-66 on his debut against Nottinghamshire.
He will be replaced by Pakistan's Mohammad Amir at newly-promoted Essex midway through next summer.
Wagner also equalled a world record by taking five wickets in a six-ball first-class over, for Otago against Wellington in 2011.
Essex have signed New Zealand fast bowler Neil Wagner for the first half of the 2017 County Championship season and One-Day Cup.