The person spoke on condition of anonymity because the deal had not been completed.
The Rockets will also receive two second-round draft picks and send guard/forward Alonzo Gee to the Kings, along with at least one other non-guaranteed contract.
The 36-year-old Terry started last season with Brooklyn and averaged only 4.5 points in 35 games. He was traded to Sacramento at the trade deadline and didn't play the rest of the season as he recovered from a left knee injury. Terry played in Boston in 2012-13 after eight seasons in Dallas, where he was named the league's Sixth Man of the Year in 2009 and 2011.
Gee came to Houston as part of a three-team trade in July that also brought Trevor Ariza to the Rockets.
The deal was first reported by Yahoo! Sports.