The appointment is effectively an account loss for its fellow roster agency Abbott Mead Vickers BBDO, which handled the £12 million BT Openworld advertising account.
The campaign, which will launch in September, will be CHI's first work for BT since being appointed as a roster agency in March.
It is unclear if the £3.5 million account for BT Openworld Business - which is retaining the Openworld branding - will move to CHI or remain with AMV.
Last September, the roster agency St Luke's created a £23 million campaign for BT's broadband service, which saw a media spend of £1 million per day in the opening ten days of the campaign.
BT aims to sign up five million households to broadband within three years. It recently announced it had passed the milestone of one million subscribers.
Pierre Danon, the chief executive of BT Retail, said: "The alliance is the next step to realising a broadband Britain, building on the one million ADSL customer mark and delivering services and content which will appeal to a mass market."
Consumers will be enticed to join BT Yahoo! by being offered a range of extra services such as interactive gaming across the globe, super webcam and digital photo libraries, the latest videos and music.
Users will also be able to set the service to block pop-up advertising.