The 6-foot-5, hard-throwing righty was 1-4 with a 3.60 ERA in a career-high 75 appearances with the Rockies last season, when he made $502,000.
Colorado claimed Ottavino off waivers from St. Louis in 2012. He was a first-round pick by St. Louis in the 2006 amateur draft and has a 7-10 career record with a 4.05 ERA in 184 games.
Ottavino had asked $1,475,000 in arbitration and had been offered $1 million.
Colorado announced the deal Monday. Catcher Wiln Rosario is the Rockies' last player in arbitration.