Jones is known around the league as a defensive stopper and will give depth to the Pacers' backcourt. Jones averaged 5.4 points and 2.1 rebounds for the Nuggets last season.
"[Pacers president] Larry Bird and [general manager] David Morway contacted me the first night of free agency and expressed a lot of interest in Dahntay," Jones' agent, Mark Bartelstein, said, according to The Indianapolis Star. "The Pacers are getting somebody that competes with an edge and is a lockdown defender. He's going to bring a defensive mind-set to the team."
Starting 2-guard Mike Dunleavy underwent surgery this summer and his return date is uncertain.
Chad Ford covers the NBA for ESPN Insider.