Paterson was still under contract with the Knights for next year, but the 23-year-old was told he would not be part of incoming coach Wayne Bennett's plans for the future.
Paterson will start training with the Cowboys next week.
North Queensland general manager of football Peter Parr suggested Paterson had been on the club's recruitment radar for some time.
"Coach Neil Henry and the coaching staff had previously identified (him) as a player we would like at the club and we're happy that we've been able to agree to terms," Parr said.
"He's a very talented player. He's only in his early 20s, has played almost 80 games and is a strong, powerful athlete.
"I know Neil thinks he is a quality player and will no doubt add to our strength and depth in the forwards."
Paterson, a Newcastle junior, made his NRL debut for the Knights in round two in 2007 and represented the Indigenous All Stars last year.
Paterson was reportedly contemplating a move to American football, having trialed with the Oakland Raiders three years ago before ruling out an immediate switch.
- AAP
Tags: sport, rugby-league, nrl, australia, nsw, newcastle-2300, qld, townsville-4810
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