The favorable contract for the Cubs allows the team the financial flexibility to add more pitching help.
During a news conference at Wrigley Field on Friday, Wood said he had offers from three or four other teams to pitch next season but left money on the table because he wanted to return to the Cubs and raise his family in Chicago. Wood said he never really wanted to leave in the first place.
"It's never been about the money," said Wood, who will have performance bonuses for games pitched and finished. "It's about being home and being here at Wrigley, which is home for me."
Wood and general manager Jim Hendry attended Ron Santo's funeral last Friday and the next day they met and had a discussion at a fundraiser held by Cubs pitcher Ryan Dempster.
Hendry said the deal wasn't reached on sentiments alone but also because Wood can still help the Cubs out of the bullpen.
Wood, 33, passed his physical Thursday and rejoins a team that selected him fourth overall in the 1995 draft. He ranks fourth in franchise history in strikeouts.
He signed with the Cleveland Indians as a free agent in December 2008 for two years and $20.5 million, but he maintained his residence in Chicago, where he and his family will live full-time.
"I wasn't a fan of leaving, didn't want to leave, felt like I wanted to stay here my whole career. But I was fortunate to go on to another team and give it a shot, but we're definitely glad to be home," Wood said.
Wood's career has been slowed by numerous injuries. He is expected to be a late-inning reliever and a bridge to closer Carlos Marmol.
In 12 seasons, Wood is 83-68 with a 3.65 ERA and 62 saves -- 34 of those with the Cubs when he was their closer in 2008.
Wood is one of the most popular players in Cubs history.
In his fifth major league start in 1998, he struck out 20 Houston Astros in a brilliant one-hitter that made him an immediate star. He missed the entire 1999 season recovering from elbow ligament replacement surgery, but in 2003 helped the Cubs reach Game 7 of the NLCS, where he was the losing pitcher despite hitting a home run against the Florida Marlins.
After winning the closer's role in 2008, he saved 34 of 40 games, his fastball blazing in the mid-90s again, reinventing his career as a reliever.
That career appeared to be nearly over in 2007 as he battled shoulder problems for a third straight season. But he made a stirring comeback in August that year after the pain in his shoulder went away and pitched well in relief.
Information from The Associated Press was used in this report.