The 29-year-old spent four years at Plymouth Argyle and made nearly 150 appearances but did not have his contract renewed and was therefore left without a club at the end of last season.
He spent part of the previous campaign on loan at Ipswich Town, where he played alongside All Whites team mate Tommy Smith, and had a similiar stint at Yeovil in 2005.
“I know the manager from way back so I’m fitting in really well,” Fallon told BBC Somerset of his new surroundings.
“I feel blessed that he has given me this opportunity. I’ve had a tough couple of seasons at club level and last season I struggled with my groins. Now I feel like I’m starting to become the old Rory.”
The former Mt Albert Grammar student, who has also played for Barnsley, Swindon Town and Swansea City, signed for Yeovil after trialling with the Glovers for several weeks.
Manager Terry Skiverton is pleased to have him on board and has a lot of faith in his new signing.
“He’s a great player, he was at a Championship club on loan last season and that shows you the calibre of player he is,” Skiverton says.
“I’ve played with Rory, I know him and he’s a good guy.”
Fallon made his first appearance for the Somerset club last week, as a substitute in a 1-1 pre-season draw with Cardiff City, and his lack of match fitness after the recent injury problems is likely to be the reason for the short-term nature of the contract.
He will be available for the Glovers when they start their League One campaign at Brentford on Saturday.