He has previously also played for the Calgary Flames and Toronto Maple Leafs.
Dion was drafted ninth overall in the 2003 NHL Entry Draft by the Calgary Flames.
Gaborik is a buyout candidate after this season, a move that would be an additional help to Ottawa's bottom line.
He scored 56 points in 55 games to finish his junior career with 146 total points.
He repeated as the WHL's Defenceman of the Year, and was again named to both WHL and CHL All-Star Teams.
"Dion brings to our club a great deal of experience and leadership," Kings general manager Rob Blake said.
"He also plays with a physical edge, which complements our lineup well." The 32-year-old Phaneuf was pulled from Ottawa's bench during a 6-3 loss at the Pittsburgh Penguins with the trade being finalized afterward.
Defenceman Dion Phaneuf will be playing in Los Angeles after the Senators agreed to trade him and Nate Thompson to the Kings in exchange for Marian Gaborik and Nick Shore.