San Antonio has prioritized re-signing its own players, and the Spurs held off significant interest from the Brooklyn Nets, league sources said.
As veteran point guard Tony Parker recovers from a ruptured left quadriceps tendon, Mills delivers San Antonio backcourt stability until Parker returns at full strength as expected early next season.
Mills, 28, became one of San Antonio's highest priorities among its own free agents after Parker was hurt during the Western Conference semifinals against the Houston Rockets.
The uncertainty regarding a timetable for Parker's return combined with the inexperience of rising second-year man Dejounte Murray, who is just 20, pushed the Spurs into a situation where they wanted to keep a veteran at point guard.
Mills has connected on at least 40 percent of his 3-pointers in four of his six seasons with the Spurs. He knocked down 41.4 percent of those shots during the 2016-17 campaign.
Still, Mills found difficulty producing during the Western Conference finals against the Golden State Warriors, averaging 7.8 points and 3.2 assists while making just 21.7 percent of his shots from long range.
He is the closest friend on the current roster to veteran Manu Ginobili, who hasn't yet made a decision about whether to retire.
Mills averaged career highs in minutes (21.9) and assists (3.5) last season while averaging 9.5 points per game. In the playoffs, Mills produced double figures in scoring in eight of 16 games, and he twice notched 20-point outings.
He was ranked No. 14 on the list of top available free agents this offseason by ESPN's Kevin Pelton.
Information from ESPN's Michael C. Wright was used in this report.