The move was first reported following Thursday's trade deadline, but the Pacers couldn't announce it until Sunday. Matthews was waived by the Knicks after a deal that sent Kristaps Porzingis to Dallas and cleared waivers on Saturday.
Terms of the deal were not announced.
Matthews will help fill the void left by All-Star guard Victor Oladipo, who will miss the rest of this season with a ruptured quad tendon in his right knee.
In 45 games with Dallas, Matthews made 44 starts and averaged 12.8 points, 2.3 rebounds and 2.3 assists.
Pacers president of basketball operations Kevin Pritchard called Matthews a ''solid professional'' who will ''fit in well'' with Indiana.
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