World Peace signed his contract Thursday, and take a physical to formalize the agreement on Friday, league sources said.
"I'm excited for Metta to be rejoining the Lakers in this next chapter in his career," agent David Bauman told Yahoo Sports. "Metta is looking forward to working with Kobe and the young players to help the Lakers now and in the future. Los Angeles and the Lakers have always held a special place in Metta's heart."
World Peace is expected to make the roster and play a role as a small forward off the bench, and a veteran extension of coach Byron Scott in the young Lakers locker room.
He will join the Lakers in Hawaii on Monday for the start of training camp.
World Peace has been out of the NBA for a year, and eager for the chance to potentially end his career with the Lakers, where he won a championship and became a fan favorite.
World Peace, 35, has been participating in informal workouts with the Lakers throughout the summer, and has impressed the organization with his connection to the younger players, especially 2014 No. 7 overall pick Julius Randle.
World Peace has been out of the NBA since the New York Knicks waived him during the 2013-14 season. He played last season in China and Italy.
World Peace played four seasons with the Lakers from 2009-13 and was instrumental in them winning the 2010 championship. Los Angeles amnestied World Peace after the 2012-13 season.
In 15 NBA seasons, World Peace has averaged 13.7 points and 4.7 rebounds. He had stops with the Chicago Bulls, Indiana Pacers, Sacramento Kings, Houston Rockets, Lakers and Knicks.