Montolivo joins after seven years with Fiorentina, where he was club captain.
Milan: AC Milan have strengthened their midfield with the signing of Italy's Riccardo Montolivo and Mali's Bakaye Traore who were both free agents, the Serie A runners-up said on Thursday.
Montolivo, 27, spent seven years at Fiorentina, where he was club captain, scoring 17 goals in 230 appearances, while 27-year-old Traore, who has joined from AS Nancy, scored 11 goals in 72 games in all competitions for the French Ligue 1 side.
The moves on Thursday come as little surprise after Nancy announced the Traore deal last week.
Montolivo has signed a four-year deal, while Traore has joined on a three-year contract.
Milan are rebuilding having last week said goodbye to seasoned campaigners Gennaro Gattuso, Filippo Inzaghi, Gianluca Zambrotta, Alessandro Nesta and Mark van Bommel.
Midfielder Clarence Seedorf has also been linked in the Italian media with a move to Brazilian side Botafogo.
Milan added on their website that Massimo Ambrosini, who signed a one-year contract extension on Wednesday, will keep the captain's armband next season, after having tied himself to the Serie A club until June 2013.
Ambrosini has spent almost his entire career at Milan since signing from Cesena in 1995, apart from a season-long loan at Vicenza.
The midfielder took on the captain's armband after Paolo Maldini retired in 2009.
Ambrosini has helped Milan to a number of trophies, including four Serie A titles and two Champions League victories.
The former Italy international was not part of the Azzurri squad which won the World Cup in 2006.
Meanwhile, Milan have denied reports that coach Massimiliano Allegri wants Zlatan Ibrahimovic out of the Serie A club after an argument with the star striker.
Italian news agency ANSA reported that the relationship between Allegri and Ibrahimovic has deteriorated, prompting the coach to ask Milan president to sell Ibrahimovic. But Milan denied the report on Wednesday, saying "it is completely devoid of any foundation and not true."
Last week, the 30-year-old Sweden captain said he wanted to stay at Milan until his contract ends in 2014.
Ibrahimovic scored 28 goals for Milan last season and finished as the league's topscorer. His club finished second to Juventus. It was the first time since 2004 that Ibrahimovic was not on the team that finished first.