A source told ESPN's Josina Anderson that it is a one-year deal with a base value of $3.5 million that can reach $4.25 million with incentives.
The 15-year veteran spent eight seasons with the Panthers after being selected second overall in the 2002 draft. He was a five-time Pro Bowler in Carolina and helped the Panthers reach Super Bowl XXXVIII after the 2003 season.
Peppers, 37, posted 81 of his 143.5 sacks while with the Panthers. He ranks fifth on the NFL's career list, behind Hall of Famers Bruce Smith, Reggie White, Kevin Greene and Chris Doleman.
Defensive end Charles Johnson, who is second on the Panthers' all-time sack list with 67.5, said earlier in the week after re-signing with Carolina that he was "all-in" on helping recruit Peppers for a return. And linebacker Thomas Davis posted an Instagram photo of him and Peppers on Friday afternoon.
The Packers signed Peppers to a three-year, $26 million contract in 2014 after he was released by the Bears. He picked the Packers in part because he believed it was his best chance to get an elusive Super Bowl ring. In three seasons, he helped Green Bay to two NFC Championship Games, but he never got back to the Super Bowl.
He was a part-time player for most of the 2016 season but still was second on the team with 7.5 sacks, despite a slow start and several games in which he made little impact.
Peppers has 661 career tackles, 47 forced fumbles, 18 fumble recoveries and 11 interceptions. He was the NFC Defensive Rookie of the Year in 2002 and Defensive Player of the Year in 2004.
Carey told ESPN earlier this week that the three-time first-team All-Pro had committed to another season after mulling retirement.
"Julius, after taking some time to reflect during the offseason, has decided that he still has the desire and enthusiasm for the game, and his intention is to play a 16th NFL season," Carey told ESPN on Monday.
ESPN's Rob Demovsky contributed to this report.