Agent Mark Bartelstein of Priority Sports and Denver president of basketball operations Tim Connelly reached agreement on the deal late Sunday night, league sources said.
With the deal, Denver was able to avoid Plumlee signing a $4.6 million qualifying offer for the 2017-18 season -- which would've allowed him to become an unrestricted free agent next summer.
Denver acquired Plumlee, 27, from Portland in the February deal for center Jusuf Nurkic. In four NBA seasons with Brooklyn, Portland and Denver, Plumlee has averaged nine points and 6.5 rebounds.
Plumlee was the 22nd overall pick to the Nets in the 2013 NBA draft.
The Nuggets will next turn their attention to working toward a rookie contract extension for guard Gary Harris.