The Lakers announced the deal Friday.
The 36-year-old World Peace returned to the Lakers last season after winning a title during his first four years with the franchise from 2009 to '13. He appeared in 35 games last season, largely serving as a veteran leader and mentor during the worst season in Lakers history.
World Peace has played in 966 games for six NBA teams during his career, which began with Chicago in 1999. He was an All-Star and the NBA's defensive player of the year in 2004.
He then received the longest suspension in NBA history in late 2004 for his role in the infamous Pacers-Pistons brawl, but he has become a model teammate and leader who received the NBA's J. Walter Kennedy Citizenship Award in 2011.
The Lakers have 20 players on coach Luke Walton's first roster as they head to training camp in Santa Barbara next week.