Nielsen earned three State of Origins caps for the Maroons in 2011-12 and has played 111 NRL games, including the 2009 and 2012 grand finals with Melbourne.
"Dane brings with him big game experience which will be invaluable for the young members of our backline," Maguire said.
"He's prepared to put in the work and fight for a spot in our backline."
The Rabbitohs squad has undergone major upheaval ahead of the forthcoming season.
The club was forced to shed Walker, back-rower Chris McQueen and prop Tim Grant to make salary cap space for the return of superstar Sam Burgess from rugby union.
They also lost New Zealand test hooker Issac Luke to the Warriors.
- AAP