The sides ended a sometimes contentious stalemate in negotiations by agreeing in principle to the deal Wednesday. Thompson signed it and is expected to practice with his teammates for the first time since last season on Friday.
Thompson was a key contributor during Cleveland's run to the NBA Finals last season. He filled in when Kevin Love was lost with a dislocated shoulder during the playoffs and averaged 9.6 points and 10.6 rebounds in 15 starts.
The 6-foot-11 Thompson gives the Cavs frontcourt depth as Love works his way back from surgery and Anderson Varejao returns after missing most of last season with an Achilles injury.
The Cavs drafted Thompson with the No. 4 overall pick in 2011.