He could be joined at Hove by Sean Abbott, with the club also eyeing a short-term Championship deal for Steven Smith.
"Shadab will provide amazing experience in our middle order, he is someone who has played all around the world and has experienced many situations, which can only benefit our team," Sussex bowling coach, James Kirtley, said.
"He really does provide flexibility to our side as he can score runs and take wickets in crucial moments, but more than anything else he is an experienced head that Ravi [Bopara] can go to as captain to look for support when making crucial in-game decisions.
"I know that he will have a massive impact on our team this year."
Shadab's legspin has helped him to 258 wickets in 225 T20 appearances - 98 from 84 for his country - and a prominent role on the franchise league circuit. He captains Islamabad United in the Pakistan Super League, and has also appeared in the Big Bash, Caribbean Premier League and Bangladesh Premier League.
His signing looks set to end Rashid Khan's association with Sussex, which stretches back to 2018. Rashid was recently made Afghanistan's T20 captain, and his involvement in series against Bangladesh and Zimbabwe would have impacted no his availability.
Shadab said: "I love playing in England. I know Mushtaq Ahmed is a legend at Sussex, and it is an honour to follow in his footsteps. Sussex has a proud history and I hope that my skillset will help the team achieve great things in the Blast this year."