"We're very happy with the deal we were able to agree to," Hill's agent, Bill Neff, told the Star. "George is very happy to be returning to Indiana."
Hill, 26, a restricted free agent, is expected to sign his new contract once the NBA's free agency period ends July 11. Terms of the deal were not disclosed, according to the Star.
Hill came off the bench at both guard positions at the start of last season. Coach Frank Vogel gave him the starter's job late in the season after Darren Collison was injured.
With Hill starting, the Pacers won seven straight, with Hill averaging 15.4 points and 5.4 assists in the seven games. Overall, he averaged 9.6 points and 2.9 assists last season.
The Pacers have one restricted free agent pending. The Portland Trail Blazers have offered center Roy Hibbert a four-year, $58 million contract, sources confirmed to ESPN The Magazine's Chris Broussard.
If Hibbert signs with Portland, the Pacers would have three days after he signs to match the offer and retain their 7-foot-2, 260-pound center under the current CBA. Indiana underwent a front-office makeover last week, with Larry Bird resigning as president of basketball operations and David Morway resigning as general manager. They were replaced by former Pacers executive Donnie Walsh and former Blazers GM Kevin Pritchard, respectively.