The 26-year-old has collected 48.5 sacks in his four seasons in the NFL, including a league-leading 22 sacks last season, which were just a half-sack short of Micheal Strahan's 2001 NFL record.
Placing the franchise tag on Houston will cost the Chiefs between $13 and 14 million. Kansas City will have until July 15 to reach a long-term deal with Houston.
Houston register at least one sack in 13 of Kansas City's 16 games last season and was Pro Football Focus' top-rated 3-4 outside linebacker. He was also selected for his third consecutive Pro Bowl, but did not take part due to an illness.
Houston, a third-round pick from Georgia in 2011, has appeared in 16 games in all but one of his four seasons, and has recorded 230 tackles, seven forced fumbles, four fumble recoveries and one interception.
Kansas City's defense was ranked second in points allowed and seventh in yards allowed in 2014. The Chiefs finished last season 9-7 and second in the AFC West.
- Christopher Woody