The deal is for $3.5 million for 2010, with a chance to make another $425,000 in performance bonuses. The performance incentives kick in at 40-65 games finished.
The deal went down to the end between the Chicago Cubs, New York Mets and Washington, Capps' agent, Paul Kinzer, said. The Mets were a late entry into the Capps pursuit, offering a similar contract to what Capps signed for with Washington.
According to Kinser, Capps decided a one-year contract was good enough right now.
"He's very confident in his ability," Kinser said about Capps. "He knows next year he will go to arbitration and he's extremely confident that at that point that Washington will want to offer a one-year deal at that time. Matt is very happy with his decision. Although the conversation with the Cubs and Mets made it difficult, he decided this was the best way to go."
Last year Capps earned $2.36 million and an an additional $50,000 in bonuses for games finished.
Capps, 26, who notched 66 saves from 2007 through 29 in Pittsburgh, can become a free agent after the 2011 season.
Bruce Levine covers baseball for ESPNChicago.com.