Looney and the Warriors met over the weekend in Los Angeles before agreeing to terms Monday, according to The Athletic's Shams Charania.
The 23-year-old played a vital role throughout Golden State's fifth consecutive run to The Finals, averaging 7.1 points and 4.5 boards per contest across 21 postseason appearances.
Looney's rebounding and ability to defend smaller guards on the perimeter gave head coach Steve Kerr more lineup flexibility during the 2018-19 campaign. His return is critical to the team's already thinning frontcourt depth, especially with Jordan Bell likely departing.
The Warriors drafted the former UCLA product with the 30th overall pick in 2015.