Reed, 18, became the Magpies' first-ever NSW scholarship player in 2006. He has recently been playing for Pennant Hills in the Sydney Premier Division.
He was recently judged best afield in the seniors grand final for his performance at half-forward in the Demons' 104-point win over the East Coast Eagles.
"I am looking forward to working on my game full-time," Reed told collingwoodfc.com.au.
"I am really excited to sign with the club.
"My goal when I signed as a scholarship prospect in 2006 was to build up my skill level enough to have an opportunity to sign with the club and I have now done that."
The 192cm forward/midfielder, who will relocate to Melbourne after his November exams, will officially be listed as a NSW rookie on the club's list.
This will allow Collingwood to select two more rookies this year, owing to concessions made for the Gold Coast team in 2009.
The Pies will now be able to list nine players, including Reed, as rookies for next year.
Collingwood recruiting manager Derek Hine believes Reed's form over the past three years warranted a contract.
"We have really been delighted with his progress, and his form in the Australian Championships demonstrated that Scott has enormous scope for improvement," he said, also on the club's website.
"The fact that he has developed in the way he has, given that he is not playing in an AFL dominated state, is really pleasing.
"He has got to know the playing group to a certain extent because he has been down here since he was 15.
"We certainly view Scott as a listed player. The reason that we have listed him as a NSW rookie is we now have the scope to select another player to our senior list at the national draft in November whilst also being able to secure another rookie-listed player in the rookie draft.
"As part of the concession for the Gold Coast, we have the ability now to elevate a rookie player after the 11th round, irrespective of long term injuries."
