As part of the deal, Indiana will send forward Damjan Rudez to Minnesota, league sources told Yahoo Sports.
Budinger gives the Pacers an additional shooting threat to spread the floor and a versatile small forward who lost playing time with the glut of highly talented young wing players in Minnesota.
Budinger, 27, averaged 6.8 points in 19 minutes a game for the T'wolves last season. In six NBA seasons, including three years in Houston and Minnesota, Budinger has averaged 8.6 points and nearly 36 percent shooting from 3-point range.
Rudez, 29, is from Croatia and came to the NBA a year ago after several professional seasons in Europe. He's shown a penchant for providing value at the stretch-4 position, shooting 40 percent on 3-pointers for the Pacers last season.