The 33-year-old is Wales' most-capped number nine, playing in 94 Tests before retiring from internationals in 2015.
Phillips joined Racing in 2013 following spells with Bayonne, Ospreys, Cardiff Blues and Scarlets.
"He is a big, powerful and very skilful player and has plenty of experience playing at the top level," Sale director of rugby Steve Diamond said.
"Mike will be one of three ex-Racing 92 players at the club next season, alongside Brian Mujati and Juandre Kruger."
Phillips played five times for the British and Irish Lions, featuring in the 2009 tour of South Africa and the 2-1 series win over Australia in 2013.
The Carmarthen-born player moved to France with Bayonne in 2011, but was sacked in October 2013 after being accused of showing up to a training session while drunk.
He won the Six Nations with Wales on three occasions, including the Grand Slam successes of 2008 and 2012, but did not feature at the 2015 World Cup and announced his international retirement in December.
Sale are seventh in the Premiership, one point outside the European Champions Cup qualification places, with one game to play this season.
Racing, who are third in the Top 14, will face Saracens in the Champions Cup final on 14 May in Lyon.
Sale Sharks will sign former Wales scrum-half Mike Phillips from Racing 92 on a deal starting from next season.