The multi-platinum star has been without a label since January, when EMI, Virgin's parent company, dropped her contract after her only disc for the label, "Glitter," was a poor seller.
Since the split, several companies were reportedly bidding to sign the Grammy-winning singer, one of the most successful artists of all time, with hits such as "Vision of Love," "Hero," "Fantasy" and "Emotions."
"Despite offers from many of our competitors, we are delighted that Mariah has chosen Island as the place to begin the next phase of her unprecedented career," Lyor Cohen, president and CEO of Island/Def Jam, said Wednesday.
The company is home to stars such as Jay-Z, Willie Nelson, Ryan Adams, Ja Rule and Ashanti. It is part of Universal Music Group, which is owned by the conglomerate Vivendi Universal.
Carey has already begun recording her new disc, said Jerry Blair, a former executive at Columbia Records who has worked with Carey since the inception of her career.
"The record she's working on is going to be a real wide-appeal record," said Blair. "There's no artist who is as successful a global artist. There is no artist that has as wide range of commercial appeal."
Blair declined to put a financial figure on the new deal. Carey's spokeswoman said the singer would not be available to comment.
Carey, 32, was an immediate commercial success when she made her self-titled debut for Columbia Records in 1990. The album went multi-platinum, as did all her other albums on the label, a division of Sony.
However, Carey became disenchanted with Sony after her divorce from Sony Music President Tommy Mottola, who had guided her career as president of Columbia.
She left Columbia last year and signed with Virgin in a much-hyped multi-album deal reported to be worth as much as $100 million. Her first disc, "Glitter," was to be the soundtrack of her film project of the same name, her first starring role.
However, her career took a disastrous turn: After displaying erratic behavior in public, Carey was hospitalized for an emotional breakdown in August. She dropped out of the public eye, and both her disc and the movie were commercial failures.
In January, EMI, Virgin's parent company, paid $28 million to void her contract. Since she had received $21 million when she was signed, Carey got $49 million for delivering one album.
Blair said Carey was in good spirits and "doing just incredibly well."
He said she was not concerned that her recent troubles would hurt her career. She has a new film with Oscar-winner Mira Sorvino, titled "Wise Girls." The film debuted at the Sundance film festival, and will be shown in the fall on HBO, Blair said.
He said Carey's new label, as yet unnamed, would focus on her, but would eventually include other artists. Carey has also created a media company to handle publishing, film production and other projects.
"Setting up this company for her is really guaranteeing her legacy," Blair said.
By Nekesa Mumbi Moody