The versatile attacker joins Gary Naysmith’s men after being released by St Johnstone, who completed a historic cup double last season by winning both the Betfred Cup and Scottish Cup.
Manager Callum Davidson wanted to make sure McFarlane found a new home following his departure and recommended the player to former Scotland team-mate Naysmith.
The 18-year-old impressed sufficiently on a trial period and earned himself a deal.
Naysmith told the club’s website: “Michael was a player that was recommended to me to have a look at by Callum Davidson after his release by St Johnstone. We offered Michael the chance to come in and do pre-season training and this was something that he accepted. Over the last few weeks, Michael has impressed everyone at the club and we are delighted that he has now agreed a permanent deal.
"Although he is only 18, Michael has a lot of very good attributes one of which is blistering pace. He can play in numerous attacking positions and I am looking forward to working with him and helping him develop as a player.”
McFarlane added: “I’m really excited to sign for an ambitious club like Edinburgh City, pre-season has been positive so far and I can’t wait for the start of the competitive matches. I hope that I can help the club to challenge for promotion as they have been doing over the last few seasons.”