Stepan, 30, posted 28 points in 70 games (a career-low 0.4 points per game) for the Coyotes last season, his 10th in the NHL. He was previously traded in June of 2017 alongside goalie Antti Raanta, heading to Arizona from the New York Rangers in exchange for Tony DeAngelo and a first round pick.
In 2020-21, Stepan carries a $6.5 million cap hit, the highest among Senators forwards. He will become an unrestricted free agent at the end of the season.
"Derek's acquisition provides us with important stability at centre heading into the season," Senators general manager Pierre Dorion said in a team release. "He plays a 200-foot game and has proven to be a reliable special teams' player throughout his career. His addition to our lineup will also represent a valuable leadership presence within our group."
In dealing away the second round pick, which had previously been acquired from Columbus, the Senators still have four picks in the top three rounds for 2021 (they possess San Jose's second-rounder in addition to their own).