Parsons committed to the Grizzlies immediately after a Friday meeting at agent Dan Fegan's home in Beverly Hills, California. The contract cannot officially be signed until Thursday.
"I really believed in Coach Fiz," Parsons told ESPN in a text message, explaining his decision to commit to Memphis. "Nobody in the league has coached better wings than him. I trust J.B. with my life. They have nobody like me, and their veteran, experienced players are a perfect fit with me.
The 27-year-old Parsons also met with and received a max contract offer from the Portland Trail Blazers when free agency opened.
"Toughest decision of my life though. Portland is incredible," Parsons added.
Parsons tweeted his thanks to the Dallas organization and fans Friday afternoon.
Sources say Parsons made his decision with the expectation that point guard Mike Conley would return to Memphis, as the pair had several conversations about playing together with the Grizzlies. Conley is scheduled to meet with the Mavericks in Dallas on Friday, but sources say Parsons and Conley never discussed playing together in Dallas.
With the Grizzlies able to offer a fifth year on his contract, the Mavs are widely considered an extreme long shot to sign the point guard. Dallas also missed out on two of its other top targets after center Hassan Whiteside committed to re-signing with the Miami Heat and small forward Nicolas Batum opted to stay in Charlotte.
Parsons has an advocate in Memphis in recently hired assistant coach J.B. Bickerstaff, who formed a close relationship with Parsons during their time together with the Houston Rockets.
Parsons averaged 14.8 points, 4.8 rebounds and 2.6 assists per game during his two-year tenure in Dallas but was only able to play in one playoff game because of knee injuries that prematurely ended both seasons.
Parsons had hybrid microfracture surgery on his knee in spring of 2015, and the rehab from that operation lasted well into the 2015-16 season. The arthroscopic operation Parsons underwent this spring to address a torn meniscus in the knee wasn't nearly as serious as the previous surgery.
Sources say multiple renowned orthopedic specialists have given Parsons clearance to resume full basketball activities and expressed optimism that his knee would not prevent him from having a long, productive NBA career.
Parsons averaged 13.7 points, 4.7 rebounds and 2.8 assists in 61 games last season, statistics skewed by a slow start as he dealt with strict minutes restrictions. He had the best statistical stretch of his five-year career in the two months before his season ended, averaging 18.9 points, 5.9 rebounds and 3.2 assists per game while shooting 51.9 percent from the floor and 47.7 percent from 3-point range and proving he could thrive at power forward in addition to small forward.
Information from ESPN's Marc Stein and The Undefeated's Marc J. Spears contributed to this report.