The deal was struck moments before the two sides began their hearing at a downtown Toronto hotel, after Senators GM Bryan Murray was able to get clearance from team owner Eugene Melnyk.
"It was a difficult negotiation," Emery's agent J.P. Barry told The Canadian Press. "Bryan and I started pretty far apart but we worked hard to close the gap and were able to do so this morning after Bryan was able to speak with Mr. Melnyk."
The 24-year-old Emery was a restricted free agent. He will earn $2.75 million next season, $3.25 million in 2008-09 and $3.5 million in 2009-10 - for an average of $3.16 million a season, a big raise over the $925,000 he made last season.
He will be an unrestricted free agent at the end of the contract.
Emery emerged as Ottawa's starting goalie last season and led the team to a Stanley Cup final appearance. He went 33-16-6 in the regular season with a 2.47 goals-against average and .918 save percentage. He was 13-7 with a 2.26 GAA and .907 save percentage. Emery has started all 30 of Ottawa's playoff games post-lockout.
The $3.16-million average for Emery eclipses the $2.66-million average salaries from Buffalo's Ryan Miller (signed last summer) and Carolina's Cam Ward and is less than the $4.25-million, one-year deal signed by New York Rangers starter Henrik Lundqvist.
So far only Brooks Laich of the Washington Capitals has gone ahead with his salary arbitration hearing. His award is expected Wednesday. The next scheduled hearing is Antti Miettinen and the Dallas Stars on Thursday.