The deal, announced Tuesday, is in conjunction with 19 Recordings Unlimited, the label managed by "Idol" creator Simon Fuller.
Speaking to PEOPLE as the Idol season ended, Davis said of McPhee, 22: "My first task is going to be to sit down with her and see what her vision is for herself. … She is a pop singer. There is no question. Our task will be to find hits for her that fit her like a glove and can be hits on today's radio. That is the challenge and the task that lies in front of us."
McPhee, who has been singing since she was 2, lives in Sherman Oaks, Calif., and has said she hopes eventually to do movies as well as musical theater.
A week ago, the show's first-place winner, 29-year-old Alabama crooner Taylor Hicks, announced a similar deal with 19 Recordings Unlimited and Davis, who will oversee Hicks's first album. Hicks's versions of the original song "Do I Make You Proud?" and the Doobie Brothers' "Takin' It to the Streets" will be released on June 13, with a full-length album due later this year.