The contract is for one year at the veteran's minimum of $1.3 million, according to sources.
Wallace is expected to sign the deal early next week.
Wallace became a free agent this summer after the Phoenix Suns bought him out of the last year of his contract. Wallace was traded from the Cleveland Cavaliers to Phoenix earlier this summer for Shaquille O'Neal.
The move is a bittersweet reunion of sorts. Wallace bolted from the Pistons for the Chicago Bulls in summer 2006 after the Pistons balked at matching the Bulls' four-year, $60 million offer.
Wallace's move from Detroit to Chicago was a bit of a bust. He never regained his defensive dominance and was traded away two years later to Cleveland.
In Detroit, the Pistons plan on using Wallace as a backup to Kwame Brown. The Pistons were especially thin on their front line last season and still believe that Wallace can defend and rebound -- albeit not at the same pace as his last stint with the Pistons.
With younger, offensive-oriented players such as Charlie Villanueva and Ben Gordon joining the team, the Pistons are trying to find ways to preserve their blue-collar approach to defense they've been known for under Joe Dumars, the former Piston who is the team's president of basketball operations.
Adding Wallace as a vocal proponent of the "Pistons Way" should help that effort in the locker room.
On Friday, Dumars announced that the team has signed 2009 draft selections Austin Daye, DaJuan Summers and Jonas Jerebko to contracts.
Daye was drafted by Detroit with the 15th overall pick in the first round of the draft. The 6-foot-11 sophomore forward from Gonzaga averaged 12.7 points and 6.8 rebounds in 34 games last season.
Summers was selected with the 35th overall pick in the second round. He started 98 of his 101 games at Georgetown and finished his collegiate career with averages of 11.2 points and 4.4 rebounds per game.
Jerebko was selected with the 39th overall pick in the second round of the draft. He played professionally in Italy the last two seasons.
Chad Ford is a senior NBA writer for ESPN.com. Information from The Associated Press was used in this report.