Freeney's one-year contract is worth $870,000 plus $1 million in sack incentives, sources told ESPN's Adam Schefter and Ed Werder. He would receive a $200,000 bonus with four sacks and then would receive $100,000 for each sack thereafter, with a maximum of 12.
It's a similar deal to the one the Cardinals gave veteran running back Chris Johnson in August. Johnson, who signed for $870,000 with additional incentives, has rewarded the Cardinals by rushing for 405 yards, tying him for second in league in the category.
Freeney passed a physical with the team earlier Monday.
Asked about Freeney, Cardinals coach Bruce Arians said Monday, "There's no agreements. We're just waiting on seeing what we're going to do."
Freeney and Cardinals defensive coordinator James Bettcher worked together in 2012 with the Indianapolis Colts.
Freeney is expected to have a limited role in pass-rush situations after outside linebacker Alex Okafor suffered a calf injury Sunday against the Lions.
Freeney, 35, had 3.5 sacks with the Chargers in 2014 and has been a free agent this season. He has 111.5 sacks in his career, putting him at No. 21 on the all-time list, one spot behind former teammate Robert Mathis (112).
In a corresponding roster move, the Cardinals placed linebacker Kenny Demens on injured reserve with a knee injury.
ESPN Staff Writer Josh Weinfuss contributed to this report.