The deal is fully guaranteed and is for the Kings' full midlevel exception, sources said. Teams can't officially sign free agents until the NBA's moratorium on deals is lifted July 10.
Collison opted out of the final year of his contract with the Los Angeles Clippers that would have paid him $1.985 million next season. Clippers coach and president of basketball operations Doc Rivers had said re-signing Collison was one of the team's top priorities this offseason.
"You know our first guy, I'll be honest, is one of our guys that opted out," Rivers said last week. "He's a little guy. That's very important for us."
Collison was the first player Rivers called when the free-agency period started and there was mutual interest in working out a deal. The Clippers, however, were not willing to match Sacramento's offer, which was not only greater financially but could also lead to a starting position if Isaiah Thomas leaves.
Collison, 26, started at both point guard and shooting guard for the Clippers last season when Chris Paul, J.J. Redick and Jamal Crawford went down with injuries.
When Paul missed 18 games this past season, the Clippers went 12-6 with Collison starting in his place and averaging 13.3 points and 6.5 assists in 32.6 minutes per game. When the Clippers came back from 22 points down in Game 4 of their second-round series against the Oklahoma City Thunder, it was largely because of Collison, who scored 12 of his 18 points in the fourth quarter.
The Los Angeles Times was first to report the deal.