Terry will enter his 17th season in the NBA.
On Monday, ESPN's Calvin Watkins reported Terry would sign a one-year deal with the Rockets at the veteran's minimum.
Terry averaged seven points in 21.3 minutes in 77 games for Houston last season, his first with the team. The Seattle native cracked the starting lineup after a season-ending injury sidelined point guard Patrick Beverley in September.
In Houston's three postseason series last season, Terry averaged 9.2 points and 2.8 assists for the 2015 Western Conference Finalists.
The 16-year NBA veteran is expected to come off the bench behind Beverley and Ty Lawson this upcoming season.
Terry scored his 2,000th three-pointer last December, becoming just the third player in NBA history to do so.
Houston's general manager Daryl Morey also tweeted a “welcome back” message for the former Sixth Man of the Year prior to Terry's announcement.
- Christopher Chavez