Islanders general manager Garth Snow announced the signing Tuesday.
Lee scored 25 goals in 76 games as a rookie last season, finishing second on the Islanders in goals and fourth among NHL rookies.
The Islanders selected the 24-year-old in the sixth round of the 2009 NHL Draft. He has 57 points (35 goals, 22 assists) in 100 career NHL games and 46 points (25 goals, 21 assists) in 59 career AHL games with the Bridgeport Sound Tigers.
Lee had 61 goals and 55 assists in 124 career games at Notre Dame. Before his collegiate career, he played for the Green Bay Gamblers of the U.S. Hockey League.