The agreement, reached Thursday, is not guaranteed.
Santiago went 6-9 with 3.75 ERA last season, his first with the Angels after starting his career with the Chicago White Sox.
Santiago started a career-best 24 games for Los Angeles, but lost his rotation spot and endured a demotion to the minors after an 0-7 start. Although he didn't earn his first victory with the Angels until July 10, he reclaimed a rotation spot and finished the season fairly strong.
Santiago made $530,000 last season.