The second year of the contract is a player option, sources said.
The deal follows James' plan to keep year-to-year flexibility to take advantage of expected increases in the salary cap.
James, who has been on vacation the past week, didn't talk to any other teams and always intended to re-sign with the Cavs.
This is the first time since 2006 James will re-sign with a team. The previous two times he was a free agent, he left for another team, going to Miami in 2010 and returning to Cleveland in 2014.
The Cavs announced Thursday that they also had re-signed guard Iman Shumpert, who said last week that he intended to re-sign with the team. Sources told ESPN.com that deal was for four years and $40 million.
It had been expected that James would wait to see if forward Tristan Thompson, who is also represented by his agent, Rich Paul, would sign before he negotiated with the Cavs.
But on the first day teams could sign players, James, 30, made his intentions known to the Cavs, who in one season went from a lottery team to Eastern Conference champions with James.
With more experienced players and perhaps a few new ones, there's no reason why the Cavs won't be in the title chase again. James' skills have shown no signs of erosion, and owner Dan Gilbert has shown a willingness to shell out major money to keep his biggest star surrounded with quality players.
And while his agreement with the Cavs is not a surprise, it does give him future flexibility and the ability to make more money next summer, when the league's new TV deal kicks in. The salary cap is expected to escalate by millions with the start of the $24 billion package.
James led the Cavs to the NBA Finals in his first season back. Cleveland lost in six games to Golden State despite his stellar efforts.
Forced to carry the scoring load following injuries to All-Star point guard Kyrie Irving and Love, James was brilliant against the Warriors, averaging 35.8 points, 13.3 rebounds and 8.8 assists -- the best statistical line in Finals history.
James said he's more motivated than ever to bring a championship to Cleveland, which has not had a major pro sports team win a title since 1964.
Information from The Associated Press was used in this report.